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A Conversation with OECD Secretary-General Mathias Cormann

In a world where rules no longer seem to apply, what’s the relevance of international discussion forums?

It’s always better to meet and talk through the issues rather than to stop talking. Just because the geopolitical environment is harder, it doesn’t mean these talks aren’t necessary. Arguably they’re more necessary. Whether it’s the G20, the IMF or the World Bank meetings, there are issues to be tackled together. Russia’s war of aggression against Ukraine has created a schism in some of those international forums, with two broad camps and then a group of countries in the middle. Just because it’s more difficult doesn’t mean we shouldn’t keep trying to find the best possible ways forward. We need these channels of communication to deal with the shared economic, social and environmental challenges we are facing as living together on the one planet.

Even if we see countries like Russia repeatedly block joint communiqués to that effort?

One of the consequences of the war is that it has become more difficult to find consensus on a communiqué around a shared vision in these forums. Within the G7, or across the OECD membership, it’s easier to find consensus because of the broad like-mindedness. But there are also examples where agreements have been reached even in this more complex context, such as the WTO Ministerial in June, where substantial agreements were reached on WTO reform, vaccine production and fisheries subsidies — with both Russia and Ukraine being part of the deals.

In the summer of 2022, you were one of the first officials who said on the record that Russia, as the aggressor, would have to pay damages for Ukraine at a time in which this conversation was still taboo and many were concerned about the legal implications. What was your motivation? 

It is a very basic principle : if you cause damage and you’re responsible for deliberately causing damage, you have to pay for the harm you cause.

The G7 has agreed to provide a 50 billion dollar loan for Ukraine. Do you welcome this agreement as an international organisation?

We welcome the strong support, including the strong financial support, for Ukraine. At the OECD, we have a long history of support for Ukraine going back more than 30 years. In the wake of the 2022 invasion, we took the view from the outset that we would further strengthen our assistance. Ukraine is at the forefront of the fight for freedom and democracy, and it is strongly committed to reform to build a better country for the future. 

What’s happening in Ukraine is a test of democracy. You have a country that is a permanent member of the UN Security Council using force to try to move internationally recognised borders. The UN Charter is very clear. It prohibits the use of force against the territorial integrity or political independence of any state. If the international community were to accept this flagrant breach of international law, it would likely have future consequences all over the world, not just in Europe.

At the OECD, you bring together a community of 38 countries, some of which have different sensitivities on a range of issues including the war. Is working together becoming more difficult?

The OECD is a community of like-minded countries. We represent market-oriented democracies from around the world. We have 38 member countries and the European Union around our Council table, and we are in the process of accession with a further eight countries, including Argentina, Brazil and Peru in Latin America, and Thailand and Indonesia in South-East Asia. These are very important emerging economies.

This shows a continued strong appetite for increased international cooperation on key economic, social and environmental issues. Whether it is international tax reform, our shared interest in tackling climate change in a globally effective and equitable way, or ensuring that we have sensible policy and governance arrangements in place globally as we move forward with developments in artificial intelligence.  Around the world, I still see a common interest in having a well-functioning global market and global trading system. Even in this  challenging geopolitical context, I still see a strong appetite to find solutions to some of the common challenges of our time.

So more focus on the technical issues…

Where there is an interest at stake, countries will engage. We provide a platform for multilateral dialogue and best practice, and we will continue to promote that. Is it harder now? Yes, it’s harder.

The international arena is more polarised and issues and approaches are more contentious. But regardless of that, there is still a strong appetite to get certain things done, we just have to work harder to accomplish them.

You mentioned Argentina. They have applied to join the OECD, they have also expressed an interest in completing the Mercosur trade agreement with the EU. The country has made a big pivot under Javier Milei in a number of areas,  economically and diplomatically. How are these talks going? 

Each candidate country, including Argentina, has to go through a lengthy review process that provides an opportunity to anchor its structural reform agenda in the medium to long term by aligning its legislation, policies and practices with OECD standards and best practices. What a country like Argentina needs, and what the accession process offers, is a comprehensive and systematic look at the entire spectrum of public policies, legislation, policies and practices to assess where the gaps are between current practice and international best practice. If they continue to go through this process, it will put them in a stronger position and on a better, more stable path, helping to ensure higher incomes and living standards for the Argentine people. That’s our experience with other accession countries in the past – OECD accession is a positive transformational process. We certainly believe there’s no reason why that process shouldn’t work for Argentina.

The President of Argentina, Milei, is a larger than life character. Some love him, others hate him. Is there a difference between the public perception and the work that gets done privately?

We are a non-partisan international organisation. We work with any elected government. Also, joining the OECD is a long process that is likely to involve more than one government. In Argentina, the Milei government was democratically elected and has a mandate from the Argentine people to implement reforms. From our perspective, they are very enthusiastic about the OECD accession process as a way of embedding a structural reform agenda for Argentina in the medium to long term. Inevitably, in the context in which they came into office, their immediate focus had to be on some of the short-term pressures, particularly in relation to very high levels of inflation. Our focus is not on the short-term political discourse, we are going through a technical process with the aim of supporting structural reforms in the medium to long term. The political judgement on their performance as a government and any future plans is exclusively for the Argentine people. 

Brazil has also applied to join the OECD. But, unlike Argentina, which is no longer considering plans to join the BRICS, Brazil is a founding member. How do you manage a country that aims to sit in both?

When we decided to open accession discussions with Brazil in 2022, it was already a founding member of BRICS. From our perspective, it is important for any acceding country to be aligned with OECD standards and best practices. We have a long-standing relationship with Brazil, dating back to 2007 when it became a major OECD partner country. We have maintained that relationship under every administration since then. At the end of the day, countries will have alliances and engagements, multilaterally and bilaterally. We will never have a completely homogeneous international community, of course. But what matters to us as an organisation is that anyone who wants to join us as a member country is committed to aligning their legislation, policies and practices with OECD standards.

You mentioned climate earlier. It seems to me that the tide is turning. Finding common ground to fight climate change has gone from being a top global priority to competing with other needs, such as defence and security, for resources and attention. Do you fear that the world is taking a step backwards?

I don’t believe it has become less of a priority. If anything, it is becoming more urgent.  I think the political leadership understands better than they did 10 years ago that you have to take people and public opinion with you. Different parts of the population are affected in different ways. You have to make sure it doesn’t become a negative issue for people — and that requires more public policy. 

Ursula von der Leyen’s political family, the European People’s Party, has been outspoken about the idea of climate solutions, but in a business friendly way. They are also calling for a pause on new regulation.

At the OECD, we’ve set up an inclusive forum on carbon mitigation approaches that seeks to replicate the approach we took on international taxation. What we are trying to do is recognise that different countries around the world are taking different approaches to achieving their carbon mitigation goals, but we want to help optimise their combined global impact. The way we try to do this is by using all our traditional OECD methods – data and information sharing, evidence-based peer learning and best practice advice, and by providing a platform for multilateral dialogue involving advanced, emerging and developing economies. We need better international coordination and cooperation, and we want to help countries talk to each other about how to minimise negative cross-border spillover risks, such as carbon leakage, and how to maximise positive cross-border opportunities, such as promoting the global deployment of new technologies, innovations and best practices to reduce emissions. Ursula von der Leyen is right, one of the things we have to do is to make sure that whatever we do on climate is as global trade and business friendly as possible, because that will help reduce the costs and maximise the growth benefits of the green transition. If we end up ushering in a new era of climate protectionism, we will end up making the climate transition more expensive. We would be imposing higher costs on people and businesses, and that is something we must avoid.

When you look at electric vehicles, and that is part of greening the economy, a number of European countries have called for compensatory tariffs on Chinese EVs arguing that their production is so heavily subsidised it is unfair competition. Trump has also said, if re-elected, he would use tariffs as a tool to keep production in the US. This environment goes against the principles of cooperation the OECD stands for, do you fear a return of tariffs as a political tool? 

An all out trade war will not help us meet our climate objectives at the lowest possible cost. Tariffs and blanket industrial subsidies create distortions that ultimately would make the climate transition more expensive. The best situation is one where the benefits of open markets and free and fair trade help us lower the cost of the green transition.

So you don’t support tariffs ?

I’m not naive. I understand that if subsidies are indiscriminately applied on one side, the other side will seek to protect its interests. What I am saying is that, at the global level, the conversation should focus on how we can avoid this trend in a fair and equitable way, ensuring to the greatest extent possible a global level-playing field for trade, also in support of our climate objectives. We need to get beyond the cycle of reaction and counter-reaction.

The OECD was  instrumental in setting up a global minimum digital tax through the Pillar One and Pillar Two framework after intense political negotiations. How is the implementation going?

We have a minimum global corporate tax of 15%. This is now a reality. More than 50 countries around the world have enacted it or are in the process of doing so. The global minimum corporate tax is now becoming a self-perpetuating reality because if a country doesn’t legislate it, it risks part of its revenue base because other jurisdictions can collect the difference up to the global minimum. By the end of next year, we expect 90% of in-scope income to be subject to the global minimum tax.

On Pillar One, the reallocation of taxing rights, from our perspective we have done the technical work and we are ready. Now it’s a political decision. Everyone understands that we will have to wait until after the US elections to see where we go next. But I am hopeful that whoever wins, we will be able to implement it. It is in the interests of all internationally active companies to have certainty and stability in international tax arrangements, including relevant internationally active US companies. And it is in the interests of countries around the world to be able to collect a fair share of revenue from profits generated in their countries.

Going back to Europe, we are seeing that basic legislation, such as drafting a budget, is becoming   difficult for governments lacking an effective majority in the face of political fragmentation and polarisation. Decision-making is becoming more difficult and some would argue, less effective. Is this the new normal?

I wouldn’t be that negative. Given everything we have been through, first the pandemic, the impact of the war, high inflation, I would argue the global economy has been remarkably resilient. We continue to achieve global growth above 3%, inflation has and is continuing to come down, global trade growth has recovered strongly and the unemployment rate in Europe remains relatively low. All that shows an extraordinary level of resilience. We should see the glass as half-full rather than half-empty. Having said that, the level of pressure on people, largely driven by cost of living pressures after a period of high inflation is real and has made the political environment much more challenging. Polarisation right now is certainly real and is a reflection of some unresolved policy issues for people in many countries around the world. 

I don’t think that we should accept it as the new normal. The political challenges of the current environment are the product of our times. They will only ease if we are able to develop, articulate and deliver a satisfactory response to these issues. In a democracy, if you’re not doing a good enough job, you’ll be replaced. Over time democratic processes will deliver the outcomes we need to get back onto a better trajectory in a sustainable way. 

You are Belgian by birth, you are now based in Paris, but you established your political career in Australia. With that background in mind: what did you make of the Draghi report?

The focus on competitiveness in Europe is extremely important. Mario Draghi, who is an exceptional leader and an outstanding economic thinker, has conducted a very comprehensive and detailed analysis and provided important findings and recommendations that are well aligned with the OECD’s analysis. Filling the innovation gap, making sure Europe puts itself in the best possible position to deal with the climate transition and ensuring economic security are all very important priorities. Mario Draghi has presented his diagnosis, the recommendations are there for all to see – I hope that now our European friends are able to find a way to implement them. 

Draghi talks about radical change or slow agony. Some have argued this is a rather pessimistic view of the world and that is perhaps the problem for Europe. There is a sense of decline that is now entrenched in the public debate. 

Let’s face it, Europe is in a comparatively strong position. If we look at the last 70 years or so, the European project has clearly been a success. Is it as good as it can be? No. Are there areas where Europe could do better? Yes, there are. But Europe has an amazing asset in its single market. It just doesn’t use it to its full potential – yet. Europe needs to embrace the positive and productivity-enhancing effects of competition.  As it stands, there are growing national barriers to the single market within Europe. It is not tariffs but nation-based barriers that are undermining the potential level of internal competitive forces. The single market could have a much more positive impact if Europe could agree on a way forward for a genuine capital market union, a services market union, a common energy market and a digital market union. All these structural reforms would help boost Europe’s international competitiveness and be a major accelerator of growth, jobs, incomes and living standards.

If Europe focused more on strengthening competitive forces internally, it would become more productive, it would also become more innovative and, as a result, it would also become more competitive internationally. And that’s my second point. Europe must continue to be willing to expose itself to international competition and not close itself off. Competition can be uncomfortable, but just because you protect yourself from it doesn’t stop innovation on the back of competitive forces from happening elsewhere. It just means that the gap between where you are and where your competitors are keeps growing. Europe is sitting on a huge, quite unique asset in the single market. If it can make it work better, it can make itself stronger in the global market. Don’t be afraid of competition.