Eugenio Diniz
During Brazil’s President Jair Bolsonaro’s visit to the US in March, 2019, US President Donald Trump agreed to support Brazil’s access to the Organization for Economic Cooperation and Development (OECD). In exchange, Brazil would “begin to forgo special and differential treatment in World Trade Organization negotiations”, as was explicitly acknowledged in the Joint Statement issued at the time — though, allegedly, Brazil will neither abandon its developing country status nor forgo what has already been negotiated; it only will not use this status in future negotiations. There was some disquiet when, during OECD’s Representative Council in the beginning of May, the US representatives didn’t change their broader position against expanding membership; but later in May, during OECD’s Ministerial Council Meeting, the US formally endorsed Brazil’s membership. The current OECD’s Secretary-General Angel Gurría expects Brazil’s accession process — along with Argentina’s and Romania’s[1] — to be relatively swift.
In March, President Trump made other announcements, including his intent to designate Brazil as a Major Non-NATO Ally[2] — there was even talk about Brazil becoming a full NATO member —, but let’s leave that to another occasion. We’ll also leave aside the issue of how effective WTO’s special and differential treatment (STD) actually is, at least for countries other than those with least developed country (LDC) status[3], which doesn’t apply to Brazil.
Our focus here is on what Brazil’s accession to full membership[4] might bring, in benefits and costs. To address this issue, let’s understand what OECD is; how it works; Brazil’s current role within it, and what changes in that role would be brought about by full membership; and what other, broader political implications those changes might prompt.
What is the OECD?
OECD is subject to many simplistic descriptions. A 2004 report published under the responsibility of then OECD’s own Secretary-General Donald J. Johnston claims it was created in 1960 “as an economic counterpart to NATO”. It’s also frequently described as “a club of rich countries”. Richard Woodward’s excellent book on OECD describes it as “a community of nations founded upon democratic and capitalist principles” — though himself notes that, when they became members back in 1961 (the first year in which countries ratified the OECD Convention), Greece, Portugal, Spain and Turkey were not exactly democratic countries. Finally, it’s sometimes referred to as a sort of think-tank.
Though there is some truth in all the descriptions above, none of them is entirely accurate. The claim that OECD was created as an economic counterpart to NATO is clearly an exaggeration. The OECD was preceded by another organization, the Organization for European Economic Cooperation (OEEC), created in 1948 to manage the distribution of the economic aid granted by the US to European countries as part of the Marshall Plan, and which did not include neither the US nor Canada. OEEC doesn’t seem to have been particularly effective on that specific matter; but, in the process of trying to accomplish its tasks, discussions took place that led to very significant initiatives, such as the European Payments Union and the Code of Liberalization of Trade, which helped intra-OECC trade to rise by 272% between 1948 and 1956. But by the end of the 1950’s, the arrangement was in serious trouble. In 1952, the Marshall Plan came to an unexpected (at least for the Europeans) end; also, the OEEC was an exclusively European organization; so, the US was even considering use NATO itself to channel whatever aid it was still to provide to Europe. The US could see no point for an European-led organization that was created to manage a program that was already finished, nor to preserve trade arrangements that were detrimental to its own exports; on the other hand, the Suez Crisis had strained the arguably most important relations within NATO — UK and France, on one side, and the US on the other —, so much so that, in December 1958, OEEC’s Council dissolved itself, never to convene again. It was against this background that a Conference on the Reconstitution of OEEC held in 1960 decided to accept the US and Canada as full members and to change its name to take into greater account the concern for development issues. OECD’s Convention was signed by 20 countries in December 1960 and entered into force in September 1961.[5]
Back in 1960-1961, Spain was not in NATO (joined NATO in 1982), and neither were Austria, Ireland, Sweden and Switzerland (and still are not), though they all joined OECD in 1961; though currently the latter countries are Euro-Atlantic Partners to NATO, so is Russia, and also Armenia, Azerbaijan, Belarus, Georgia, Kazakhstan, Moldova, Tajikistan, The Kyrgyz Republic, Turkmenistan, Ukraine, and Uzbekistan, none of them a OECD member. On the other hand, Japan (OECD member since 1964), Australia (OECD member since 1971), and New Zealand (OECD member since 1973), though not NATO members, are NATO’s Partners, and had a very close security relationship with it throughout the Cold War. So, in the end, there was significant convergence between OECD and NATO during a good part of the Cold War; but it was an arrangement that came into existence exactly when NATO was under great strain.
As to the rich-countries club, one can’t help notice the absence in OECD of 9 of the G-20 countries, including China, Russia, India, Indonesia, Saudi Arabia, and, of course, Brazil itself; not belonging to G-20, but among the 20-largest economies (PPP) of the world according to the World Bank, Iran and Thailand also don’t belong to OECD. Among the 10 largest economies (US$), 3 — China, India, Brazil — don’t belong to OECD; if we consider PPP, then, 5 — China, India, Russia, Brazil, Indonesia — of the 10 largest economies in 2017 don’t belong to OECD. Now, considering GDP (PPP) per capita, among the 10 largest economies, 6 are not OECD members; and among the 20 largest, 8 don’t belong to OECD. The only criterion in which there is something close to a match is in GDP (US$) per capita: of the 10 largest economies, only 2 don’t belong to OECD; and, among the 20 largest, 16 are OECD members. So, it’s fair to say that The Economist’s description of OECD as a “club of mostly rich countries” is more accurate.
But what is this club for? What does it do? In a sense, though also not quite accurate, the notion of a OECD as a sort of official, international think-tank might give us an insight about its role in international politics. Let’s take a look at its inner workings.
How does OECD work?
“…ninety-nine per cent of our work concerns the exchange of experience and the elaboration of lines of action.”
(Emile van Lenned, OECD’s Secretary-General, 1964-1984)
“…the most important thing that changes because of the OECD might be the thinking of the people involved.”
(Robert Wolfe)[6]
According to Art. 1 of OECD’s Convention, its aims are to achieve highest sustainable economic growth, employment and rising standard of living in member countries, while at the same time maintain financial stability; to contribute to sound economic expansion in both member and non-member countries; and to contribute to expand world trade on a multilateral, non-discriminatory basis. If we only look at those aims, OECD looks quite unoriginal. What is unique to OECD is its approach to achieving that.
Basically, OECD works toward its aims by fostering the coordination of policies among its members and, increasingly, also with some selected non-members more actively engaged by it. Initially, this policy coordination was more focused on achieving multiparty coordination; more recently, focus has been increasingly on the coordination of domestic policies. But, contrarywise to what happens in the International Monetary Fund (IMF) and the World Bank, with their conditionalities; or the World Trade Organization (WTO), with its mandatory principles enforced and adjudicated by its robust dispute settlement procedures, in principle, there is no imposition from OECD upon its parties. Besides contributing to the “core budget”, members are only required to keep each other informed, and furnish to OECD, the necessary information for the accomplishment of its tasks; to consult on a continuing basis, carry out studies, and participate in agreed projects; and to cooperate closely and coordinate action when appropriate.
Cooperation and coordination are to be achieved mainly through the work of committes and working groups — composed of government officials, OECD staff, technical experts and, sometimes, “civil society” — that collectively enable the organization to “engage”, “influence” and “set standards”. In 2019, there are more than 300 working groups and committees addressing many different issues, from shipbuilding to digital economic policy, consumer policy, local economic employment development, or corporate governance. OECD’s staff is about 2,500 people. According to its own brochure, more than 140,000 policy makers and shapers visit OECD annually. Sometimes, non-governmental organizations are engaged in particular issues, but business and labor participation is institutionalized in the Trade Union Advisory Committe (TUAC) and the Business and Industry Advisory Committee (BIAC). At TUAC, 59 national organizations, claiming to represent ca. 58 million people, are affiliated; at BIAC, a total of 100 business organizations are represented as Member Organizations, Observer Organizations or Associate Experts.
Those committees and working groups may meet in person and or virtually to discuss some topics of interest. Most of the participants belong to member states, but selected non-members may participate as observers, and sometimes as full participants. Brazil, for instance, is currently[7] full participant in 31 groups and observer in 50 groups; back in 2014, according to one study, Brazil was the most engaged non-member country in terms of participation in OECD committees. On the other hand, full participation implies the expectation of full engagement with the committee, and full participation entails the same obligations that are required of full OECD members.
Sometimes, discussions and debate may lead to the drafting and voting of a normative instrument. There are six kinds of those in OECD: Decisions, Recommendations, Agreements, Conventions, Declarations and Arrangements or Understandings. Decisions and Recommendations are adopted by the OECD as a body; the others are negotiated within OECD, but adherence is voluntary. Though Decisions are adopted by OECD as a body, but they are binding only to those states that vote in favor of them; therefore, states that don’t intend to abide by it signal this by abstaining. Recommendations are not binding at all; its only force is the power of the collective will of the like-minded, which means that, if a party doesn’t follow it, it sounds like it’s not being part of the team; discomfort and embarrassment are the forces for compliance. Though Agreements and Conventions are negotiated within OECD, member states may adhere or not to them; it’s up to each state. Arrangements or understandings are forms of cooperation arrived at by some OECD member countries, and declarations are solemn expressions of commitment to an idea or policy. None of those is legally binding, but then again, observance is expected.
Some of those instruments may even create some other organizations that, even if they are considered “Special Bodies” within OECD, are separate organizations and may even have different memberships. The most notorious of these special bodies is the International Energy Agency (IEA), which publishes the famous World Energy Outlook and other reports. IEA was created in the wake of the 1973 oil crisis, as a response by the major oil consumers. Currently, 30 of the 36 OECD member countries belong to IEA — Brazil is currently listed as an “Association Country”, since it’s not a OECD member.
But OECD’s main instrument for achieving policy coordination is its peer review process — which involves also some (sometimes intense) peer pressure —, most notoriously the Economic Surveys (the peer review of economic policies of all member countries and of some selected countries — including Brazil) and the Environmental Performance Reviews (peer review of environmental policies of OECD member countries). The Economic Surveys have a 12-18-month cycle, and the Environmental Performance Reviews have a 6-7 year cycle.
Peer review processes are usually conducted in 3 phases:
-> preparatory, usually consisting of a background analysis by OECD’s Secretariat and some kind of self-evaluation by the country under review;
-> consultation, in which the Secretariat and examiners consult with authorities of the country under review, and, if they wish to, with interest groups, civil society, or academia; the Secretariat prepares a draft report, usually comprising an analytical section, and an evaluation section with conclusions and recommendations; this draft is usually, but not necessarily, shared with examiners and with the reviewed country, and may be amended by the Secretariat before it is submitted to the reviewing body — in the case of Economic Surveys, the reviewing body is the Economic and Development Review Committee (EDRC);
-> assessment, in which a delegatron from the country under review discusses the draft report and defends its policies before a plenary session of the applicable body. Sometimes, NGOs may be involved, and also some IGOs — the IMF participates in the Economic Surveys, and occasionally the IBRD and the WTO; generally, the review is approved by consensus, unless the reviewing body’s rules specify otherwise. The final report and its recommendations form the basis for subsequent monitoring and the next reviews.
Overall, OECD publishes more than 500 major reports and country economic surveys annually. These are then the major processes by which it influences policy-making and policy coordination, since these reports are not only circulated among policy-makers and policy-shapers, but actually involve them in its formulations, at the same time making available to them a highly-qualified technical staff; along the way, then, many standards are progressively adopted by countries, members or not, and IGOs (OECD claims to have developed and helped foster more than 450 international standards along its 58 years of existence). These eventually spread to other instances in which compliance is more formally enforced, such as the IMF, the World Bank, or the WTO.
So, in this sense, comparing OECD with a think-tank is an interesting insight into its working; but it doesn’t tell the whole story. Its secretariat also supports activities of other international institutions and organizations, most notably the G-7 and the WTO. Besides that, because it’s a venue in which some issues are addressed for the first time, or controversial subjects can be negotiated, OECD also becomes a forum for coordinating actions and strategies for negotiations in other forums. In this sense, it is also a potentially important political tool for its members. This is an important consideration for what follows.
What’s in there for Brazil?
As we’ve mentioned before, Brazil is a committed non-member — it’s listed as a “key partner” — in OECD, fully participating in 31 groups and an observer in 50 groups; according to the aforementioned Davis’s study, in 2014, Brazil ranked second in terms of signature of OECD instruments by non-members; and, in a OECD brochure published in March, 2018, current Secretary-General Angel Gurría states that “… over the past two decades [Brazil] has been the OECD’s most engaged Key Partner and a source of valuable policy experience. Brazil’s participation in OECD activities has enriched our work and helped us find solutions to global challenges”. Brazil is also subject to reports and reviews in many subjects, such as implementation and enforcement of OECD’s Anti-Bribery Convention; competition law and policy; many economic issues, in addition to the economic surveys; public governance; regulatory reform; sustainable development and other environmental issues, including Environment Performance Reviews; and this is not an exhaustive list. By participating in committees, expert groups, working groups, working parties, task forces, schemes etc., Brazil can influence discussions and have its voice heard in a significant range of subjects; by participating in reviews, Brazil is already subject to criticisms and already has the opportunity to revise and change them according to those criticisms, if it feels it should.
So, all in all, why bother? What might be additional benefits that might come with being a full OECD member?
The point is that, by participating in those committees, working parties, expert groups etc., Brazil can make its voice heard there, and influence the debates, discussions, and whatever results from them: e.g., draft agreements or conventions. But then, its influence is restricted to those discussions, and not the OECD itself, and even its influence in the groups in which it participates is somewhat restricted because of its non-membership in OECD.
OECD members participate fully in the organization’s Council, which is its main body. The Council meets regularly at the permanent representatives’ level (when it’s chaired by OECD’s Secretary-General), and annually at the Ministerial level (when it’s chaired by a chair and two vice-chairs specifically chosen by the Council). The Council usually decides on a consensus basis, but there are some “special cases” in which a decision can still be taken even if consensus is lacking, as long as: (i) it’s not opposed by 3 or more countries who contribute a quarter of OECD’s Core Budget (or “Part I” Budget); and (ii) it draws the support of 60% of the Council members. Those special cases include the approval or amendment of staff or of financial regulations and rules; and the formation, perpetuation or dismantlement of committees and programs. Consensus is required for some issues, including: accession and participation of non-members; adoption of the overall Programme of Work ad Budget (PWB); revisions or changes in governance structures; and passage or amendment of OECD acts. The Council also approves the Secretary-General (chosen among candidates nominated by members) and supply the Core Budget (about 200.1 million Euros in 2017).[8]
Besides being OECD’s public face and representing it before governments and international organizations, the Secretary-General determines the organization’s agenda and that of its constituent bodies, and can also make proposals to them. He is also the main link and main broker among OECD’s bodies; coordinates their work in fulfilling the organization’s roles; and can make recommendations to the Council on issues to be studied. He or she also appoints OECD’s staff (if approved by the Council), recruited predominantly from member states.
The Secretariat serves the Directorates (OECD’s “departments”) and is responsible, among other things, to prepare the drafts of OECD’s reports, including policy reviews such as the Economic Surveys. Since OECD is the primary laboratory of ideas for many relevant IGO’s such as the WTO, the IMF or the World Bank, and is usually the first to address some original issues, ideas put forth by the Secretariat can have a very long-term impact in international politics, trade, finance, governance and development policies — including funding for development projects. OECD’s staff also performs some staff functions for less structured bodies such as the G-7 or the G-20.
So, non-members, however engaged in OECD’s work, only participate in committees, working groups etc. when invited, and can’t choose to participate in some debates, even if they have strong feelings or interests on a subject; may not decide on its budget; may not decide on its structure and governance; may not decide which issues will be addressed by OECD; may neither nominate nor choose the Secretary-General — and therefore have no say on OECD’s main’s and subsidiary bodies’ agendas, nor in staff recruiting; and they will be at severe disadvantage in having their nationals in the Secretariat. What all this means is that non-members have a limited capacity to put forth or help elaborate ideas that might come to shape international politics for very long time, whether non-members like it or not. The degree to which one country thinks it’s in its interest to take part in those decisions is the very measure of the gross benefit of becoming an OECD member. But in order to assess net benefits or losses, possible costs must be considered.
What might be the drawbacks?
An obvious cost for OECD membership is the total contribution to the Core Budget. Mexico contributed, in 2017, with around 2.8% of the total Core Budget of about 200.1 million Euros; Spain contributed with around 3,0%; and South Korea with 3.1%. So, it’s a reasonable estimate that, if Brazil belonged to OECD by then, it would also have contributed around 3,0%, which would amount to about 6 million Euros in that year. That would be the first type of cost.
In Brazil’s case, another point to be considered right now is the cost of forfeiting any benefits that it might get in the future due to its developing-country status. There is a curious point in this. It’s not usually required of countries that enter OECD – Mexico, for instance, didn’t have to abandon that status. Anyway, it was demanded to Brazil, and, as it seems, Brazil promptly accepted that. So, those would be the second type of cost to be taken into account.
But, arguably, the potentially most significant, negative impact would be political (but also with potential economic implications). There is concern that this might significantly damage Brazil’s standing in the G-77 (or G-77 + China) — a group that brings together 134 countries of the world (most of them usually categorized as “developing country”), and is very important in the UN, particularly when it comes to development issues. That is a very important issue.
When Mexico and South Korea acceded to OECD, they voluntarily quit the G-77. But that was not the case with Chile. Chile joined OECD in 2010. Though Chile signed the OECD Convention in May 7th, 2010, the invitation was issued by OECD and the Accession Agreement signed by the Government of Chile during the first term of President Michelle Bachelet. After then, there was some strain within G-77 ranks, with some African countries — most vocally Nigeria and Tanzania — calling into question Chile’s right to keep participating, given the fact that OECD and G-77 aren’t usually on the same page in matters most relevant to the former. Still, Chile had the backing of most Latin American countries, including Brazil, which, by then, had Mr. Luís Inácio Lula da Silva as its president. It’s interesting to note that, by then, Chile’s president wasn’t Mrs. Bachelet anymore, but Mr. Sebastián Piñera (first term). Currently, Chile still belongs to G-77, Mrs. Bachelet having been Chile’s president again, and having been succeeded by Mr. Piñera again. The issue seems to have subsided in G-77.
So, it seems possible that Brazil might become an OECD member without, for this specific reason, damaging its ties to the G-77. The fact remains that some other changes in Brazil’s stances on international matters under the current presidency of Mr. Jair Bolsonaro would seem much more dramatic in terms of distancing from G-77 positions than the accession to OECD itself. On the other hand, membership in OECD would be a more enduring situation; it’s not clear if many, or even most, of those other changes would be long-lasting. In fact, it seems that some of the most controversial proposals are being quietly discarded or at least watered-down, such as the idea of moving the Brazilian Embassy in Israel or that of finishing Mercosur.
***
Those, then, are the issues to be considered in order to assess the pros and cons of becoming a member of OECD. The point here was not to do the assessment myself, but to clarify what seems to be at stake. I hope it helps.
[1] Other candidates are Peru, Bulgaria and Croatia, but those are more controversial amongst OECD members.
[2] In May 8th, 2019, President Trump sent a message to the US Congress designating Brazil a major non_NATO ally; it takes effect in 30 days from that message.
[3] There is a significant literature on the matter. To discuss it here would substantially increase the post’s length and distract from the subject of OECD.
[4] Brazil already participates in many activities within OECD; more on that later.
[5] This short historical account is reliant on Woodward, Richard. The Organisation for Economic Co-operation and Development (OECD). London, Routledge, 2009. pp. 11-19.
[6] Both quotes are in Woodward, op.cit.
[7] As of June, 2019.
[8] This and the next two paragraphs draw heavily on Woodward’s book, cited above.
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