Media Center



September 11, 1998 - Washington, DC

I am very pleased to have been asked to address this Conference on Trade and Investment in the Americas for a second time, and also to see that this event has gained life and momentum. The opportunity for the Organization of American States, the Andean Development Corporation, and the Inter-American Dialogue to bring together, annually, other policy institutions, decision-makers, and thinkers in Washington and in the region to exchange ideas on trade and investment relations between the Andean Community and the United States, and to evaluate ways in which these relations can be strengthened and expanded is highly valued by the OAS and the representatives of its Member States.

We all must thank the Andean Development Corporation, and especially its President Enrique García, for spawning this excellent initiative. The relevance and significance of this process is reflected not only by the influential participants whose attention this conference is able to harness, but also by the impressive body of studies that emerged from the first conference. An edited volume containing the studies presented at last year's conference, made possible by CAF and available to you today, will aid further analysis of the U.S.-Andean trade and investment relationship and help to create a better understanding of the political and economic forces that underpin it.

The discussions that will take place during the course of today are certain to be insightful and thought-provoking. They will highlight the progress that the Andean countries have made towards trade and investment liberalization, as well as the future challenges that they must confront to enhance the process of regional integration and encourage further external opening. We also will have a chance to examine the relative importance to the Andean Community and the United States of each other's market, and to evaluate various scenarios through which access to them can be improved.

Let me also take this opportunity to congratulate the new governments in Colombia and Ecuador for their recent electoral successes, and to welcome to this forum the representatives of those governments who are here with us today.

Ladies and Gentlemen:

This second conference is taking place at a time when the global markets are in deep turmoil, and when economies that we once held exemplary are in serious crisis. Over the past year, the economies of this region have been affected to varying degrees by adverse shocks, in particular, the downturn in demand from Asian countries, the volatility of capital flows, the sharp decline in commodity prices, particularly oil -- all deriving in large measure from the Asian crisis. The external environment has deteriorated even further in recent weeks, especially reflecting market reactions to the crisis in Russia. El Niño also has taken its toll.

The countries of the region have made efforts to adjust to the changed external environment, with policy responses varying in speed and content, reflecting individual economic, political, and social circumstances. These efforts are critical to preserve the progress that the region has made in macroeconomic and structural reform.

Indeed, as recognized last week by the Heads of State and Government of the Rio Group and by the Ministers of Economy and Finance at their meeting earlier this month, the Latin American economies, after a decade of structural reforms, show clear signs of strength. Latin American economies are far healthier than they were in 1990 and in a much better position to withstand this, and future crises.

During the late 1980s and the early 1990s, trade regimes in the Andean region were opened, financial distortions were eased, currency controls were abolished, some general deregulation was put into place, and a large number of state-owned enterprises were privatized. Intra-Andean trade grew by 29 percent annually, and the Andean Community now has some of the lowest tariffs in Latin America. At the same time, the change in attitude regarding the importance of foreign investment, as well as the necessary policy framework to promote it in the Andean region, resulted in a remarkable recovery of foreign direct investment (FDI) flows to Andean Community countries. Between 1990-1994, FDI in the Andean region as a whole more than quadrupled, drastically reversing the negative investment outflows of the period 1985-1989.

This unilateral liberalization of trade and investment in the Andean countries translated rapidly into a more dynamic integrationist thrust, and measurable progress has been made in deepening and consolidating the Andean integration scheme. The result of this collective action has been even greater trade and investment liberalization.

For their individual and regional interest, the Andean Community countries will resist the temptation presented by these circumstances to diverge from this economic path and withdraw into themselves. Rather, as the leaders of the Rio Group countries reaffirmed at their recent summit, the Andean Community countries and the rest of the membership of the Rio Group will continue their responsible management of economic policy mechanisms that guarantee stability and growth.

At the same time that Latin American economies act to bolster their economies, however, the Asian economies must adopt the necessary measures to correct the present imbalances. It is also essential that the industrialized countries take the necessary steps to restore stability to the financial markets and guarantee global economic growth.

As they proceed with their individual reform efforts, the Andean Community members are developing a common approach towards Latin American and hemispheric integration. The process of creating an Andean political identity, now backed by all countries, is essential to this task. The internal cohesion that we all expect to emerge from a consolidated and manifest Andean identity, sustained by solid democracies with dynamic civil societies, will strengthen the legitimacy of the Andean integration system and help to guarantee the sustainability of the integration process over the long-term.

But sub-regional groups are not ends in themselves. Instead, they are seen as paths towards larger integration efforts at the Latin American, hemispheric, and global levels. Demonstrating their commitment to trade openness beyond the sub-regional level, Andean Community countries are participating actively in the negotiations leading up to the Free Trade Area of the Americas (FTAA).

Andean country delegations, like all others, arrived this week in Miami for the first meetings of the FTAA negotiating groups, prepared to pursue a serious agenda. In fact, the first three groups to meet -- Market Access, Agriculture, and Services -- have developed a work program and meeting schedule in excess of any previous estimate.

The Market Access Negotiating Group, chaired by an Andean Community member country -- Colombia -- succeeded in sketching out a serious work program that addresses the main issues of tariffs, non-tariff barriers, rules of origin and customs procedures, safeguards, and standards and technical barriers to trade.

The Agriculture Negotiating Group is a new group, although agricultural issues had been discussed during the preparatory process in the Working Group on Subsidies, Anti-Dumping and Countervailing Duties. This group struggled successfully with determining the appropriate demarcation between themselves and the Negotiating Group on Market access.

The Services Negotiating Group is continuing where the preparatory Working Group left off. The Group is working off a "essential issues" framework established at the last meeting of the then preparatory Working Group on Services. And the Investment Negotiating Group is meeting as we speak.

The remaining five Negotiating Groups (Intellectual Property Rights, Government Procurement, Competition Policy, Dispute Settlement, and Subsidies, Anti-Dumping and Countervailing Duties) will meet before the end of September, and the Special Committees on Electronic Commerce, Smaller Economies, and Civil Society, during the month of October, as mandated by the Trade Ministers. The OAS, in coordination with its partners on the Tripartite Committee, is continuing its technical and administrative support to the meetings of the Negotiating Groups throughout the process.

Andean enthusiasm for the FTAA process is not surprising as the Western Hemisphere is by far the Community's most important market. The United States is the main export market for four of the five Andean countries -- Bolivia, Colombia, Ecuador, and Venezuela -- and is the second largest market for Peru. Trade with the United States comprises a very significant 40 percent of the Andean Community's trade activity.

On the other hand, the Andean Community, a market of 104 million people, is also an important market for the United States, exceeding two continents -- Australia and Africa -- as a U.S. trading partner. Moreover, the Andean Community countries are important suppliers of a strategic commodity, oil, giving the area salience to the United States well beyond the magnitude of bilateral trade flows.

Another 20 percent of Andean Community exports go to the rest of the Hemisphere - 4 percent to MERCOSUR, 2 percent to Mexico, and 14 percent to the rest of Latin America. In turn, an equivalent 20 percent of total imports into the Andean Community come from Latin America.

It is clear then that the FTAA offers the most expansive arrangement for widening the Andean Community's free trade access in the Hemisphere and, in particular, to its most important trading partner, the United States. It permits the Andean countries to pursue strengthened trade and investment relations with the United States, while simultaneously improving trade relationships with other countries in the Hemisphere. Also very important, the FTAA allows the Andean Community countries to do this as a cohesive group.

Andean countries, therefore, should use the FTAA negotiations as a means to enhance their liberalisation efforts, to consolidate the Andean Community regime in relevant areas, and to engage in constructive dialogue with their larger partner in a forum where trade issues are the focus. The Andean countries are in a unique position within the Western Hemisphere, lying between the two main sub-regional poles of NAFTA and MERCOSUR, to play a positive role in pushing forward the negotiations and to help find areas of common ground between the larger players.

The United States, for its part, also should approach the FTAA negotiations with conviction. This means enacting fast track legislation. With the current instability in global markets, approving fast track will send a clear signal that the United States is not relinquishing its leadership role and reinforce its agenda for market opening. Additionally, enactment of fast track will reassure global markets that the United States expects continued growth of trade in goods and services.

In further recognition of the complementarity between the processes of regionalism and multilateralism and the potentially positive effects on trade and investment liberalization, the Andean Community recently commenced negotiations with MERCOSUR to set up a free trade area between both integration schemes in the year 2000. Individual countries also have sought to enhance their competitiveness through a widening network of bilateral and plurilateral agreements. For example, Colombia, Mexico, and Venezuela entered into the G-3 Agreement, which provides for free trade among the three countries by 2005. Colombia and Venezuela also concluded separate preferential trade agreements with the CARICOM countries, which envisage some degree of reciprocity offered by the CARICOM countries within five years of implementation of the agreements. They also have proposed to negotiate jointly a free trade area with the Central American countries.

Some may decry this "open regionalism" approach of the Andean countries, arguing that regional agreements run the risk of becoming inward-looking and discriminatory, causing important diversion of trade and investment flows, and weakening the multilateral trading system. These opponents of regionalism also worry that regional agreements may cause national leaders to lose interest in trade liberalization at the global level and divert resources and political capital away from their multilateral initiatives, slowing the pace of progress at the multilateral level.

However, like the governments of the Andean countries, I see a brighter side to this phenomenon. Regional agreements provide an opportunity to promote faster trade liberalization at the regional and multilateral level. They also could provide a valuable testing ground for new approaches to difficult trade problems, generating useful information that could make multilateral agreements more palatable and durable.

These regional integration processes have some other important characteristics that make their continued nurturing relevant to the global community. First, membership in such arrangements, especially those that aim at the formation of customs unions, like the Andean Community and MERCOSUR, has allowed participating countries to consolidate and lock in the economic liberalization reforms made during the last decade and to move forward into new areas where unilateral reform had proved difficult domestically. This is critical to foster global economic growth.

Second, the notable expansion in intra-regional trade in the 1990s, especially within sub-regional groupings, has not taken place at the expense of third countries. In fact, the world trades more with these countries now than at any other time during their economic relations, signaling the positive effects on trade and investment liberalization.

Third, the emphasis that the countries of the region have placed recently on the consolidation of their trade and integration agreements have not prevented these countries from being active proponents of multilateralism. The region was a very active participant in the Uruguay Round negotiations. This Latin American activism has been maintained since the conclusion of the Uruguay Round negotiations as is demonstrated by the region's full participation in ongoing WTO processes.

Hence, there is little to fear from the new Latin American integration. As I emphasized last year, and reiterate here today, our regionalism does not run counter to the trade liberalization efforts at the multilateral level. It does not obstruct, but facilitates trade openness. It does not result in trade diversion, but trade creation. It does not close markets, but contributes to keeping them open. It does not hold back investment, but stimulates it. It is no longer inward-oriented integration, but outward-looking, towards the rest of the world.

We must take care, however, to ensure that the potentially positive contributions of regionalism to global opening are not undermined. Regional trade agreements must be consistent with the multilateral trading system to maximize global benefits. Indeed, compatibility is an objective as well as a necessity given that all countries in the region are members of the WTO.

I do not doubt for the slightest moment that the countries of the region will be better prepared to face the enormous challenges of the next millennium, if they manage to consolidate their current efforts at integration. The FTAA countries apparently share this conviction as they have agreed to continue to strengthen existing sub-regional arrangements even as they work towards a comprehensive FTAA.

The complexity of the current global context, while challenging, also provides the countries of the Andean Community with an opportunity to rise above the reform fatigue and reform skepticism that recently has plagued them. Acceleration, perfection, and deepening of current economic reforms are not sufficient. Andean Community countries, as well as other countries in Latin America and the Caribbean need to jump start the institutional or "second generation" reforms that are essential to achieve macroeconomic stability. One lesson that the current crisis in East Asia and Russia has taught us is that the stronger our fundamentals, the better equipped we are to stave off these attacks, which are sure to resurface in the future.

Countries in this region will act quickly to make the necessary adjustments as the external environment changes. But other actors in this global community also must do their part. The countries at the epicenter of the crisis have to take decisive action to correct the disequilibrium, and industrialized countries and the Bretton Woods Institutions must do what is necessary to restore confidence in the market, and do so immediately. This is no time for panic; it is time for strong, collective action.

As this very distinguished group of policy-makers, academics, and members of the private sector and multilateral institutions grapple with these and other complex issues over the course of the day, I am certain this conference will illuminate some of the available options for strengthening and expanding the U.S.-Andean trade and investment relationship, for continued positive economic performance even in the face of crisis, and for the sustainable development of Andean societies. Let me thank, in advance, all the panelists and speakers for their cooperation and participation. I have no doubt you will have very stimulating and fruitful discussions.

Thank you.