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Globalization hits the OECD

The OECD is expanding in all directions. But questions over the expansion's meaning for the 30-member bloc, which has largely been a 'rich white man's' club of industrialized democracies, should be analyzed – Lawrence J Speer.

This month's celebrations for the 60th anniversary of the Marshall Plan have given rise to a new period of soul-searching at the Paris-based Organization for Economic Cooperation and Development (OECD), a multilateral body that traces its roots to Washington's post-war European reconstruction project. The Marshall Plan commemorations are taking place just as the OECD - a think tank and occasional negotiating forum for 30 of the world's richest industrialized democracies - launches its first major expansion campaign in more than a decade.

The OECD announced during its annual ministerial meeting in May that Chile, Estonia, Israel, Russia and Slovenia were invited to launch membership negotiations. It also announced plans for "enhanced engagement" with five other leading developing countries - Brazil, China, India, Indonesia and South Africa - who may also eventually be invited to join. And it said it would actively reach out to other potential partners, notably in Southeast Asia. But what will enlargement mean for the OECD, and how will the inclusion of new dynamic developing countries change the outlook of a private members group long derided in some diplomatic circles as "a rich white man's club"?

Looking back at the history of the Marshall Plan may offer insights into the potential benefits and challenges posed by enlargement. Today, it is widely accepted that Washington's largesse - more than $13 billion in aid was delivered over the 1948-52 period, or about $100 billion in today's money - played a key role in transforming the devastated countries of Western Europe after World War II. There is also wide agreement that the Marshall Plan laid the foundation of a shared identity that may have helped the West win the Cold War. Formed in 1961, the OECD created an economic alliance between the 18 Marshall Plan recipients, the US and Canada. At the time of its founding, the OECD comprised more than three-quarters of global GDP and as much as 90% of world trade.

Japan was admitted as a full member in 1964, followed by Australia in 1971 and New Zealand in 1973. A subsequent wave of expansion in the mid-1990s extended the OECD's reach to Mexico and South Korea. The last wave brought the Czech Republic, Hungary, Poland and the Slovak Republic into the fold at the end of the Cold War. Today, with the OECD's share of global economic output and trade steadily shrinking, and developing countries claiming a growing share of the pie, conventional wisdom holds that expansion is once again essential. OECD Secretary-General Angel Gurria, a former Mexican finance minister who took over the helm in 2006, says the OECD must improve its global reach if it hopes to remain a 'relevant' multilateral organization. But is this really the case? The OECD has neither the universal reach of the UN nor the financial heft of the World Bank or the International Monetary Fund. Its relevance stems directly from its role as a high-level forum where like-minded governments can hold economic, environmental and social policy discussions. It is not clear how the addition of countries in vastly different stages of development will improve these talks.

The OECD also offers its member countries a forum for negotiations. Much of the dialogue revolves on "soft law" or non-binding instruments to guide government policy. This is the case with regular talks on investment rules and a "gentleman's agreement" on the use of state financing by export credit agencies, neither of which are directly covered by the Geneva-based World Trade Organization. The OECD has occasionally moved beyond soft law, serving as a forum for the negotiation of various binding legal instruments, such as a landmark 1997 treaty that outlaws bribery of foreign government officials. Other OECD-led negotiations have proven less successful, such as a failed bid to end steel subsidies in the early years of the Bush administration, or the unsuccessful bid to negotiate a free-standing multilateral agreement on investment in the mid-to-late 1990s.

It is far from certain that adding new members will improve the effectiveness of the OECD. In fact, it would actually hinder, rather than help efforts to reach consensus. Despite these concerns, conventional wisdom appears to carry the day, and the OECD has launched an overhaul of its Paris headquarters in anticipation of enlargement to as many as 45 members over the coming decade. The biggest winner to date appears to be Russia, which has been clamoring for membership since the mid-1990s, but has faced doubts from many members - notably the UK and the US - over its commitment to democracy, the market economy and the rule of law. These concerns were apparently out-weighed by key European countries' belief that it will be easier to discuss complex issues like energy supply with officials from Moscow sitting around the same table. But Russia must first join the WTO and fully implement the anti-bribery treaty.

Chile and Israel are expected to face a quicker road to full membership, which may be reached within two years. Estonia profited from its reputation as the most modern of the Baltic states, while Slovenia's bid was helped by its pending EU presidency during the H1 of 2008. Officials from each of these new accession countries have likened OECD membership to admittance to a select club, predicting a range of benefits including increased foreign investment and improved credit ratings. The question on many minds is why the world’s richest countries were able to recognize that they had little to gain by letting would-be Cyprus or Latvia into their exclusive club, but then offered an invitation to Russia, which is far from a 'like-minded' nation, while leaving the door open for a possible future invitation to a totalitarian, one-party regime like China. The answer: Russia has much more to offer than Cyprus, particularly solutions to Europe's near-term energy needs. And China's role in the global economy may make it just to big to be ignored.

The OECD is also betting that inviting new countries into the fold will help raise standards globally, as would-be members are required to adopt policies similar to those of existing members. This gamble is not without risk, however. The history of the Marshall Plan illustrates that it was shared interests – European construction and the Cold War – that led to greater integration, and not the other way around.

Lawrence J Speer is a Paris-based freelance journalist who has reported on French economic and foreign policy, as well as European affairs, since 1995. (isn.ethz.ch)