Media Center



February 17, 1998 - Washington, DC

First, let me thank the organizers of this event for their kind invitation to share with all of you my perspectives on the economic and social transformations taking place in the hemisphere.

I want to begin with a simple statement: We have reached a critical moment in the Americas.

The reform process initiated in Latin America and the Caribbean in the late 1980s has achieved extraordinary progress in opening markets and consolidating democracy throughout the region. So far, the reform momentum has endured, surviving the Mexican peso crisis, and -until now- surviving the Asian crisis.

Last year, the average growth rate for the economies of Latin America and the Caribbean was 5.3 percent -- the best performance in 25 years. Average inflation rates in the region were lower than 11 percent, down from 18 percent in 1996 and 25 percent in 1995. Market opening measures in the region continue at a strong pace and are clearly having a positive effect. With tariffs down from an average of 40 percent in the 1980s to 11 percent today, the value of the region's exports continues to rise, from $223 billion dollars in 1994 to an estimated $327 billion for 1997. And private sector investment is flowing to the Latin American and Caribbean countries at an impressive rate. According to UNCTAD's World Investment Report, between 1995 and 1996, foreign direct investment increased by 52 percent to $39 billion, a record level. Businesses see in these trends opportunities for growth and prosperity. Governments see forces for stability, prosperity, and security.

But still, the results of reform are uneven. Unemployment remains high in Latin America and the Caribbean. In most countries, growth rates are still not sufficient to make a big improvement in poverty rates, and income inequality seems to be growing in many countries. A recent World Bank study concluded that to significantly reduce the number of people living in poverty, the region's economies must grow by more than 6 percent a year. That same report described the regions health and education services -- which are vital to any poverty reduction effort -- as "dismal."

This "good news-bad news" scenario underscores the fact that the Americas are rapidly progressing in certain areas while standing still or even regressing in others. It is clear, however, that the progress in economic reform in Latin America and the Caribbean will not be sustained politically unless its advocates demonstrate concretely that it offers a better life for the Hemisphere's impoverished citizens. Here, neither the ideologues of the market nor the ideologues of the state hold all the answers to the daunting challenges, or as the World Bank puts it, "The Long March" that lies ahead for the region.

As governments get out of the business of running companies and subsidizing food and utilities and into providing the regulatory framework for free and fair operation in the economic marketplace, they must also strengthen the capacity of the state to deliver human services and safeguard basic rights.

In essence, what this means is that lasting improvements in the economies and living conditions in our region demand a sustained commitment to a wide range of policy initiatives. These initiatives, while important on their own, are intertwined. And all of these endeavors are likely to require years of careful cultivation before producing a bountiful harvest.

This is why we have a Summit process. The comprehensive framework forged at the first Summit of the Americas provides a political and, increasingly, an institutional framework for moving our region forward in a number of areas simultaneously. The leaders who crafted the Summit agenda realized that progress on one front will ultimately falter unless there is progress on all fronts.

It is important to continue to keep this tension in mind as we head toward the Second Summit of the Americas in Santiago, which will focus, not only on trade and economic integration, but also on the eradication of poverty and discrimination, education, and strengthening democracy and human rights. These are all integrated and mutually-reinforcing parts of the comprehensive strategy launched in Miami. And while we go to Santiago having taken many steps over the past few years towards realizing these goals, a considerable amount work remains.

That said, most of us here today are preoccupied with the status of what many see as the central achievement of the Miami Summit: the adoption of a plan to unify of the economies of the Western Hemisphere through the construction of the Free Trade Area of the Americas.

We are now reaching a critical juncture in this process -- moving from the preparatory phase to the actual negotiations. We all expect that the leaders of the Americas will decide in Santiago to officially launch the negotiations for the FTAA, and agree that this would be a giant step toward making the FTAA a reality. But we also know that the FTAA faces a number of challenges. They range from developing certain mechanisms that will help steer the negotiations, to the exact nature of the accord itself, to the general political and economic climate that ultimately will determine the pace of negotiations.

As for the state of the process, despite the lack of fast-track authority in the US, we head to Santiago with good reason to be optimistic.

Over the last three years an incredible amount of work has been accomplished, which has established a solid foundation for negotiations -- and for the eventual completion of an FTAA. The FTAA nations have forged an agreement on the core principles for this endeavor. The FTAA will be a "single undertaking" -- every participant must accept all the obligations. There are no free riders. The FTAA will be compatible with the World Trade Organization Agreements. And member countries must agree not to raise trade barriers against non-member countries.

In furtherance of these core principles, senior government officials, operating in 12 FTAA Working Groups, have assembled an unprecedented collection of data and analysis on existing trade-related disciplines in the Americas. This work has been coordinated by the Tripartite Committee, which is composed of the Organization of American States, the Inter-American Development Bank, and the United Nations Economic Commission for Latin American and the Caribbean.

Together, these institutions have served as the technical arm of the FTAA. The OAS, for example, has provided invaluable technical and analytical support to eight of the 12 working groups, laying the foundation for eventual agreement on common disciplines in such matters as investment policy, competition policy, intellectual property protection, anti-dumping and countervailing duties, and standards and technical barriers to trade.

At the same time, a series of private sector working groups has been participating in the FTAA process by giving input, helping to identify priority areas, and finding opportunities where governments can act immediately to facilitate business on a hemisphere-wide basis.

From this solid foundation, we come to the important task of developing the mechanisms that will support the next stages of the process. The framework for next phase of the FTAA will be decided in March when the Trade Ministers meet in San José, Costa Rica. This week, the vice-ministers made further headway in finding consensus on related issues such as the structure of the Agreement, the location for the negotiations, and on the kind of secretariat that will be required to support the process.

While no firm decisions have been made on the nature and structure of the future FTAA secretariat, all indications are that the Tripartite Committee, and the OAS in particular, will continue to play an important role in supporting the FTAA, and the entire Summit process.

Resolving such issues as technical secretariats and negotiation sites may seem trivial to some, but they are critical to the success of the FTAA. As we saw in the preparatory phase, forging a free trade area in the Americas is a monumental undertaking; and questions of logistics, methodology, and the nature of the support required by participating countries to facilitate the process will shape the course of the negotiations and, possibly, the result. It is certainly in the interest of all FTAA countries to clearly define the rules of the game at the outset, so as to avoid delay in, and distractions, from the difficult policy discussions that lie ahead.

Another challenge is to clarify what, exactly, the FTAA will encompass. The United States has referred to the FTAA as something that should be the "state of the art" among trade and investment agreements. This means crafting an accord that moves beyond the WTO Agreements and into the so-called "new subjects" such as intellectual property, competition policy, and trade in services. But these are thorny, dense topics and the FTAA would be breaking new ground by reaching comprehensive agreements in these areas.

If this is to occur, there needs to be a strong consensus about what FTAA members mean when they say ?"WTO-plus." In addition, establishing a sound road-map for negotiating agreements in the "new subjects" would have the added advantage of answering critics who say that the FTAA somehow poses a threat to the multilateral process. It would demonstrate that the FTAA can, and will serve as a template for reaching accords that then can be adopted on a global level.

We also need to think about what the relationship will be between the FTAA and the existing sub-regional agreements. The FTAA must somehow bring together the economies of the Americas under a single agreement while preserving, in some form, existing alliances. Much effort has been expended crafting such accords as Mercosur, NAFTA, CARICOM, and the Andean Community. And the FTAA, in large part, owes its existence to the success of these integration efforts.

Many countries do not want to see their sub-regional relationships dissolve into the FTAA. At their meeting last year in Belo Horizonte, the Trade Ministers agreed that the FTAA can co-exist with bilateral and sub-regional agreements, to the extent that the rights and obligations under these agreements are not covered by or go beyond the rights and obligations of the FTAA.? This is important language. But it is likely that there will need to be further clarifications in this area to avoid conflicts.

A key attraction of the FTAA is its potential to provide business with a uniform set of rules for trade and investment activities in the Hemisphere. If the FTAA is to fulfill this promise, then its relationship to sub-regional and bilateral accords must be firmly established.

Yet another challenge is how the FTAA negotiations will accommodate the concerns of small and less developed economies in the Hemisphere. As has been noted on many occasions, the FTAA involves negotiations between some of the world's largest economies and some of its smallest.

Government officials from all of the FTAA economies need to feel that they are prepared when they sit down at the table to hammer out the details of the FTAA. Thus, smaller countries that face real human and financial resource constraints must feel prepared to participate equally with their counterparts in, say, Brazil or the United States --- countries who bring to the process virtual armies of seasoned trade negotiators. They must be provided with strong incentives and the most effective tools possible to be full participants in the FTAA effort.

The OAS is already taking steps to address this concern by working with the World Trade Organization and Georgetown University to hold a series of training courses targeted at government officials from smaller economies. These are intensive, three-week sessions that will help negotiators from the small and less-developed countries refine the skills they will need to deal with regional and multilateral trade issues.

Even with the progress that has been made in increasing the comfort level of small economies, their participation in the FTAA could be colored by developments in related trade matters. In the Caribbean and in Central America, there are volatile discussions over banana exports and NAFTA parity that could get entangled in the FTAA talks. Resolving these issues soundly in the near future could help remove a potential irritant.

Finally, and, perhaps, most importantly, there is the political and economic climate that will serve as the backdrop for the negotiations. Finding solutions to all of the challenges I mentioned will be an exercise in futility if there is not broad political support for the FTAA, or if economic conditions deteriorate to the point that people start viewing free trade as the enemy.

The US fast-track debate gave a graphic demonstration of the political challenges confronting the FTAA. And the U.S. is not the only country where the public is unsure about the benefits of free trade. In Latin America, we hear talk of "reform fatigue" and the fact that successive waves of economic reform are making it difficult to generate much enthusiasm for the FTAA.

What is needed is a lively public discussion about the merits of open markets. Rather than a cause for pessimism, issues such as the fast-track debate should be viewed as an opportunity to make a case for free trade. If we are truly committed to democracy, then we should embrace the fact that no trade agreement can or should survive without solid public support. That does not mean that trade should be sold as a cure for all of our ills. But supporters of open markets should not be idle while free trade is offered as a scapegoat for all of our economic uncertainties.

Of course, economic conditions will certainly influence the pace of the FTAA process. Unfortunately, the transition of the FTAA to the negotiations phase is occurring just as the Asia crisis is providing fuel to critics of globalization.

The economic distress and uncertainty caused by such shocks could pose a challenge to the free trade agenda. We are not yet in danger of going back to the days of high tariffs and tight state-control. But severe macroeconomic difficulties will make it hard to move beyond the status quo, or at least "lock-in" the progress of the last ten years through a hemispheric accord. When people feel pain but see no gain, a backlash is always a danger.

This brings us back to the need for support for the entire Summit process. Just as the private sector should support the FTAA, it also should get behind the mutually-reinforcing Summit initiatives aimed at strengthening democracy, protecting the environment, reducing poverty, eliminating corruption, ensuring labor rights, and stopping the flow of narcotics. As I have said, the trade agenda cannot advance unless we understand the combination of economic, social and political forces needed to make integration a concrete reality.

The Summit agenda serves to remind us that what we seek here is not the demise of the state. Instead, we are trying to act as a hemisphere to tear down certain parts of the state while, at the same time, fortifying others. To quote Financial Times columnist Martin Wolf, "what is needed is a careful consideration of what governments can and should do when the market is global but their sway is merely local."

Thank you.