Wednesday, 13 November 2013

Hong Kong should join the OECD

Article in China Daily, Hong Kong Edition on November 11, 2013 by Ken Davies.

Hong Kong can benefit from joining the Organisation for Economic Co-operation and Development (OECD), the world’s leading forum for sharing experience on all areas of policy apart from defense and national security.

The OECD is no longer just a “rich countries’ club” now that its members include countries like Chile, Mexico and Turkey, as well as developed countries in Europe, North America, North East Asia and Australasia. Nevertheless, joining it is often seen as an accolade for reaching a high level of economic development. This was, for instance, the case when South Korea joined in 1996.

The organization brings together foremost policy experts from around the world, but it is not merely a think-tank. Member government representatives gather on policy committees to review each other’s policies. They also sign declarations and conventions that have the force of treaties.

Unlike the United Nations General Assembly, OECD committees and the annual ministerial get-together are peaceful and positive in tone, with the focus on helping members to improve. Nobody bangs their shoe on the table. Proceedings are behind closed doors, encouraging frankness.

Nor are members coerced into saying or doing anything they don’t like. Decisions are by consensus, not majority vote (except only in the Budget Committee).

Hong Kong has been an officially-recognized observer on the OECD’s Trade Committee since 1994 and an observer on its Committee on Financial Markets since 1995. In practice, observers are given equal rights with members on such committees. Hong Kong is frequently included in multi-economy studies by the OECD in policy areas such as education. It usually emerges rather well in comparison to many existing OECD member countries.

There are costs and benefits of joining any club. The main cost to Hong Kong is made up of fees for joining the OECD and renewing membership, which are not large for an economy of Hong Kong’s size. The potential benefits to Hong Kong — and the other members — if Hong Kong joins the OECD, are enormous.

The SAR faces many policy challenges. None of these challenges is unique. Hong Kong can learn much from the experiences of other countries, enriched by analysis by the OECD Secretariat. The OECD’s evidence-based policy research is second to none.

Crucially, membership of the OECD will give Hong Kong a key role in making international rules across a wide range of policies that directly affect Hong Kong, including responsible business conduct, corporate governance, statistics, education and many others. It will also be in a position to shape the research agenda to meet its own needs.

And as the SAR shares its own considerable success in economic and social policies, it spreads its message in an effective — and cost-effective — way. For example, it can lead the way in demonstrating how to build an open, rules-based business climate that attracts large investments. 

Also, explaining the ICAC’s success can both attract investment by showing that Hong Kong is a clean place to do business and also help the SAR’s trading partners to root out corruption.

As Hong Kong signed the General Agreement on Tariffs and Trade in 1986, it became a founder member of the World Trade Organization (WTO) at the beginning of 1995. WTO membership is an effective precondition for accession to the OECD, which requires a higher standard of commitment that includes investment, as well as trade, openness.

But could Hong Kong pass all the entry tests? There are dozens of “acquis” it would have to sign, including declarations that usually entail policy changes.

In fact, Hong Kong is already more qualified even than some existing member countries. It would have no difficulty making the grade in a couple of years at most. By contrast, Russia has been struggling with difficulty through the accession process since it was invited to apply in 2007 and is not yet a member.

The hardest part of joining the OECD is in the investment policy area, which is where, as an OECD official, I worked with China and other countries from 2002 to 2010. This involves signing the Declaration on International Investment and Multinational Enterprises and acceding to the OECD Codes of Liberalisation of Capital Movements and of Current Invisible Operations.

Since Hong Kong is already a model of investment and trade openness, it would face no difficulties in signing either of these international agreements. It could even do so as a non-member of the OECD.

Before deciding to apply for OECD membership, Hong Kong can test the waters by becoming an observer on more policy committees. I confidently predict that such an initiative would be warmly welcomed all round.

The author was head of Global Relations in the OECD’s Investment Division until his retirement in 2010. He played a major role in bringing the “enhanced engagement countries” (Brazil, China, India, Indonesia and South Africa) closer to the OECD.

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