Media Center



March 20, 1996 - Cartagena de Indias

The organizers of this conference asked me to speak about the strategy that we should follow to attain the integration of the Americas by the year 2005. As the foreign trade ministers agreed in Denver, we are in the process of building a free trade area that will be consistent with the provisions of the World Trade Organization (WTO)—one that will be balanced and comprehensive in scope, that will not erect barriers against third countries and will represent a single scheme of rights and obligations.

Efforts so far have been aimed at developing a program that will prepare us to start negotiations. The first phase has been to create a common language and a technical statement embracing the principal topics for negotiation.

The system of working groups has proved quite satisfactory for this purpose. Their work has helped us to compile a solid basic information, to build data banks, to make systematic comparisons of the various accords, to gather statistics and standards—in short, to respond more effectively to each of the subject areas. Without this preparatory effort, we could not move ahead with technical work and be ready for policy discussions.

The working groups have also attempted to identify areas of agreement and disagreement on the subject matter for the negotiations. The objective is to guarantee the most open system possible for trade and investment systems in the various countries, and ensure thorough familiarity with these systems as a first step for beginning the actual negotiations.

With technical support from the OAS, the IDB, and ECLAC, the working groups have made significant progress in their discussions. Some of them already have a clear picture of the path that the participating countries must take in order to reach agreement among them.

For example, the Working Group on Investments, as Secretary Brown stated yesterday, has decided to move ahead with identification of the elements that would be included in a hemisphere-wide agreement on treatment of foreign investment. This progress has been possible thanks to the remarkable degree of common ground that has been discovered, in both the domestic investment rules of the various countries and the bilateral investment agreements that they have signed.

The groups on Market Access and Rules of Origin are close to finishing their ambitious database on trade flows, tariffs, and non-tariff measures. This is indispensable for starting negotiations on the matter that is at the heart of any free trade accord: the elimination of barriers to trade.

The Working Group on Standards has compiled an inventory of national rules in this area, and is now talking about the possibility of harmonization of these rules, and eventually, reciprocity.

The Group on Sanitary and Phytosanitary Measures has been helped by the participation of nearly all the Hemisphere nations in the World Trade Organization. It is clear that the agreements on these matters in the Uruguay Round can serve as a starting point for the Free Trade Area of the Americas (FTAA).

In some of the working groups the subject matter is extremely complex. This is true in the case of the groups on Subsidies, Antidumping, and Countervailing Duties, and on Small Economies. Here too there has been progress, despite the inherent technical problems in the discussion. But we must recognize that much remains to be done if we are to define the criteria and standards that will be used in applying the agreement to these countries. I am confident that we will develop a hemispheric free trade arrangement that will recognize and afford special treatment for the differences, and, at the same time, guarantee that the accord is fair.

As for the subjects to be considered by the new groups that will begin to function after Cartagena, the OAS, the IDB, and ECLAC, with the support of other regional institutions, are preparing to give them the necessary technical support to facilitate and speed up their work. The mission entrusted by the trade ministers to the working groups has been fully carried out. One year after Denver we can say that we have covered a great deal of ground in compiling the inventories of technical information required to begin productive negotiations.

However, most of the groups have fallen short when it comes to recommendations in the various work areas for establishing a negotiating strategy for each discipline in the agreements.

This is understandable. When we start to talk about strategies, in effect we are beginning actual negotiations. It is natural that when this moment of truth arrives all will want to think twice before plunging in the water.

We are coming increasingly closer to the time when we must answer some key questions that are basic policy decisions. Until we answer them it will be hard to begin a process of negotiations that some governments have said should start next year. Some business associations want them to start even sooner.

Let me review what seem to be the most pressing and vital issues.

First, we should decide how ambitious are our dreams for the FTAA. Do we want to go beyond the standards established in the Uruguay Round, or do we want to restrict free trade within the parameters of agreements within the framework of the WTO? This is something that the working groups should begin deciding.

Second, although it is increasingly clear that we are going to follow the path of convergence of the principal accords, and not that of expanding one of the large regional accords, we are still a long way off from identifying the path that will lead to this objective. We do not yet know which accords will be the basis for the convergence, or whether there will be a process of convergence of regional agreements in phases, leading toward progress on the hemispheric level. This will largely depend on when the negotiations start and how fast they move. We also have to consider Canada's constructive proposal that sets forth the bases for a negotiating strategy for developing a new and comprehensive framework agreement of hemisphere-wide scope.

Third, it is not clear whether there is a gradual route that will make it possible to start early negotiations on less controversial points so that progress in these areas can inspire confidence in the process—as proposed by some private sector institutions in the document, "An Agenda for Progress"—or whether we should wait until all subjects are sufficiently ripe for global and simultaneous negotiation.

Finally, we might ask what is the best way to ensure that the FTAA objectives are consistent with the strategic priorities of the private sector. This congruence with business leaders is the key to ensuring their sustained support in establishing the FTAA. Without that support we cannot move forward.

I am confident that this private sector forum will serve as a model for finding answers to these questions, and for maintaining coordination between the public and business sectors on this matter that is clearly one of the most ambitious undertakings ever attempted by a group of nations. Perhaps not since the establishment of the old European Economic Community has there been an undertaking of such vast scope and promise.

This forum has already made a great contribution by undertaking to review the work method adopted in Denver, to offer input on the terms of reference for the working groups, technical analysis and information on private sector needs, and explain to the business community the advantages of free trade and the FTAA process. This presence and role guarantee not only that the process will dovetail with business needs and aspirations from the start, but also that—and this is equally important—they will help to mobilize public opinion in favor of establishment of the Free Trade Area of the Americas.

If the private sector can begin to reap some specific benefits from this integration as soon as possible, it will clearly reinforce public support for free trade initiatives, which by their very nature tend to yield longer-term results. In this context, I should say that I share and fully support the constructive recommendations of the private sector with regard to early action, openness in establishment of policies, programs, and rules; and a growing convergence of regulations governing trade and investment, especially customs procedures, health and plant inspection rules, and technical barriers. We should not ignore that the countries can make unilateral decisions apart from the negotiations that will encourage confidence in the process. These "confidence-building measures" in trade matters will reflect efforts that every country will make anyway to rationalize foreign trade and adapt to the globalization of the world economy.

Here I should also mention the idea from the private sector that the countries agree not to raise current tariffs, keeping the present structure "on hold" unless it is reduced to promote freer trade between nations.

We would also welcome complementary measures in the process of establishment of the FTAA that encourage free trade and investment, patent protection, and early reduction of peak tariffs. Disciplined application of the Uruguay Round commitments by all countries, without exception would, in the same manner enhance credibility and trust.

At this point, I would like to mention a specific theme I believe should be present in any negotiation. The current debate on trade goes beyond matters narrowly related to the exchange of goods. This is what the Uruguay Round called "new subjects." Matters such as investment, patents, official purchases, services, financial and capital markets, technological transfer, and standards for competition, among others, will come to play a pivotal role in the agenda of negotiations for freer trade in the Hemisphere.

It is clear that for the industrialized countries the problem of market access continues to be important, but the emphasis of their aspirations is now on the "new subjects." This is due in large part to the fact that restrictions to their products in the rest of the Americas have been considerably eased because of the unilateral decision of the other countries to open their markets without negotiating reciprocity.

By contrast, countries at the intermediate stage of development have a long list of complaints and demands with regard to access for their products in the wealthier markets in the Americas. This is particularly so in sensitive policy sectors, such as farm products, light manufactures, and some basic industries. The mix of administrative barriers, subsidies, and high duties makes the access problem very important for Latin America and the Caribbean.

Here it is important to understand that success in the negotiation will depend on balance and symmetry in dealing with the goals of the different participants. If this interpretation is to reflect a bit of reality, it will be necessary to link the negotiations on access and "new subjects" in such a way that progress in the area of greater interest for the industrialized countries should be accompanied by sold concessions and commitments on improved access.

You may note that I have stressed the need to build confidence and credibility among our countries in this collective endeavor. I do so because this long and winding road has had, and will continue to have, potholes that are of a political rather than technical nature.

Since the Miami Summit there have been incidents that raised doubts about the possibility of creating the Free Trade Area of the Americas, and about the commitment of the largest trading partner to move toward the start of these negotiations before the end of the century. This skepticism is no reflection of the will of the government, because the Clinton administration has reiterated its sincerity about starting the negotiations sooner rather than later.

The problem is with public opinion, where the domestic commitment to free trade seems to have been undermined by a combination of an erroneous interpretation of the difficulties of the Mexican economy in some quarters, and the discomfort caused by the U.S. economy's adjustment to rules of global competition over the past decade.

Congressional delay in granting "fast-track" authorization to the government to negotiate a free-trade agreement with Chile illustrates this point. In addition, the bitter controversy that surrounded the successful financial aid package for Mexico, which President Clinton supported in a timely manner, has raised questions about how receptive some opinion leaders will be to the constructive engagement of the United States in the region.

Frankly, I think isolation is no longer a realistic alternative. I am positive that when we start negotiations to establish the FTAA, we will count on a commitment from all parties that is as decisive and enthusiastic as the one they made in the historic Miami Summit.

Given that we must all work together to create this climate and political will in our countries to permit us to advance, let us consider what is needed to make the Free Trade Area of the Americas a reality by 2005.

The objective of establishing the FTAA goes beyond goals in the area of trade. It is above all the expression of a convergence in the Americas of the basic economic, political, and social values that guide us.

The collective pursuit of integration became feasible in the first place because nearly every country in the Hemisphere has a firm commitment to democracy.

In the second place, discussion of the FTAA became possible because protectionist policies are being scrapped in all the countries of the Americas. In our hemisphere, the debt crisis prompted countries to move toward lower tariffs, eliminate many of the administrative measures that restrained trade, and break down all sorts of barriers to the free flow of goods and services among the countries.

To guarantee viability in the integration process, it is vital to continue these policies, which imply the basic conviction that building increasingly freer foreign trade is intrinsically healthy for the national economy.

In the third place, trade integration is possible today because the countries learned the hard lesson of huge costs and trauma associated with the loss of balanced budgets and monetary and financial stability. Without that stability and congruent economic policies at the regional level, integration cannot occur. We must recognize that a consensus on the need to maintain macroeconomic stability is the cornerstone of the current drive for hemispheric integration.

Perhaps the key element in the process so far, which gives hope that the FTAA is politically and economically viable, is that freer trade has demonstrated its power by producing exceptionally positive concrete results.

The figures speak for themselves. The average tariff of the ten largest Latin American countries plunged from more than 50% a decade ago to 25% in 1991, and 12% during 1993. Intra-regional trade within MERCOSUR has been increasing at an average rate of 30 per cent per year since 1992. Trade between Latin America and the Caribbean increased by 20% last year, and intra-regional exports in general doubled between 1992 and 1995. Exports among the Andean Group countries, as a share of their total exports, have doubled.

U.S. trade with Latin America and the Caribbean in 1995 was US$202 billion, which is a 12% increase over the previous year and a 72% increase over 1990. U.S. exports to the Americas have increased twice as fast as those to any other region of the world. Canada's exports to Latin America and the Caribbean increased by 30% last year. To illustrate this point, today the United States exports more to Costa Rica than to all of Eastern Europe, and Brazil buys more U.S products than China.

We must move decisively to sustain and enhance this dynamism. Cartagena must give a clear signal that there is no obstacle, circumstance, or uncertainty capable of derailing the trade integration process in the Americas. The concrete results of integration and opening encourage our faith. Now we must guarantee that they continue, and work to bring the fruits of progress to every nation in the Americas.

I would like to turn now to what I see as the lessons we have learned since Miami. I would also like to discuss what we must do in the years ahead to adopt a strategy of collective action and domestic policy that will enable us to consolidate our gains and move ahead toward the Free Trade Area of the Americas. The most urgent tasks are:

To preserve the political will of the countries and their governments;

To maintain the dynamism of the trade flows as one of the main engines of economic growth;

To honor all of the commitments made at the Miami Summit in the area of social policy; and

To strengthen our democracies and combat threats to them in the form of corruption, drug trafficking, and terrorism.
Attainment of these objectives will strengthen the foundation on which we have built so far. And let me re-emphasize that I do not envision building of the FTAA to be mainly an economic undertaking. It is one of the most ambitious political projects that our hemisphere has undertaken.

It would be pointless to move forward in trade matters if democracies are crumbling because of corruption, or if people are rising up against free enterprise because they mistakenly blame it for the inability of their governments to carry out social policies that really improve the standard of living of the poorest sectors.

Since Miami we have learned to assess our weaknesses and uncertainties more accurately. Today it may be easier to see the whole picture of the economic factors, the political limitations, especially as they affect the strengthening of the state which have little to do with its own scope.

What has happened in the Americas is not unlike the phenomena that have occurred in the political and economic evolution of Eastern Europe and the former Soviet Union. Until a few months ago we thought that globalization, prosperity, progress, and economic reform were permanent trends because everyone shared basic economic values and underestimated the political and social problems. We were swept along by a wave of euphoria. We have come to realize, however, that gain without pain is impossible.

I do not believe that the countries have decided to regress. We are not returning to the bad old days of isolationism and protectionism—that is impossible—and anyone who attempts to ignore global reality will suffer the consequences.

Rather, I think that we are living in a more realistic world, without economic miracles and without that blind faith in a sort of determinism in which trust in the strength of private enterprise and the free market is enough to ensure growth and well-being.

For starters, we must learn that in many countries people are increasingly tired with economic policy as almost the only topic of public debate, when there are so many other pressing problems and subjects. We should not be surprised that in some of our countries people are tired of hearing only about privatizations, fiscal deficits, trade policy, working groups, and all that we have been discussing at this conference. So far their turnoff is not rejection, merely the reflection of their demand for attention to problems that they feel are more urgent.

I do not believe that people want to turn back the clock. Reform and opening up of economies continue to be welcome and appreciated changes. People do not want to go back to a failed economic model that offered no hope for improving their lot. They rather hope that the reforms will address these public policy issues and those areas of the state that bear directly on their daily concerns.

After the economic adjustments , we must work to improve the well-being of our people through the combined action of the market, the government, and the private sector. We should not see it as a rejection of the reform and modernization strategies if citizens raise new questions about the role of government and the impact it should have on changing their lives. This subject has always been, and will continue to be, the principal issue of political action.

Those who dogmatically see economic reform as a step toward the demise of the state, in which the most vulnerable sectors are abandoned to the vagaries of the market, are sowing the seeds for an avalanche of protest and loss of electoral and political support from citizens throughout the Hemisphere for market opening and stability.

Citizens want to see how the government will defend their economic and political freedoms, and also how it is going to ensure equality and social justice, new rights, more democracy, greater participation, and better citizen control.

In order to integrate in the coming decade while defending economic reforms in the Americas, it is also indispensable to strengthen democracy and freedom, clean up our political machinery, and fight the various forms of violence. As I said, establishment of the Free Trade Area of the Americas is first and foremost a political enterprise.

I believe that we will fall short of the goals we have set unless we understand the political economics of integration—the combination of economic, social, and political forces needed to make integration viable in the concrete reality of decision-making in our countries. Hence the importance of understanding poverty and social policy, and their relation to the whole process of economic reform and trade liberalization.

We can find the roots of persistent poverty in the shortcomings of our policies, and not in simplistic rhetorical explanations about the selfishness of our business executives or the malice of our governments.

For example, recent problems have induced some to blame our poverty in Latin America and the Caribbean on economic reform and modernization, rather than on the unpleasant side effects of the debt crisis of the lost decade, such as the drying up of international capital sources, the flight of public and private investment, the dramatic economic stagnation, devaluation of our currencies, and the consequent increase in the price of imported goods.

It is in these phenomena, not in the structural reforms of the economy, that we can find the explanation for the increase in poverty in some countries. But now that the reforms have produced dramatic improvements on the economic front, the countries have won breathing space to devise viable strategies for social development.

The economies that are more open, more market-oriented and fiscally balanced, with states more attuned to their responsibilities, have shown they have the ability to increase social investment, achieve higher growth rates and fuller employment, which is crucial for reducing poverty significantly.

Of course, these economic policies alone cannot eliminate poverty. But they offer potential that must be converted to reality. It is not a simple task, because a government may not be well equipped to meet social needs. This is because nearly all of the governments continue to use the same jaded investment and social polices that are legacies of yesterday. With very few exceptions, reform of the state in Latin America has not reached the critical area of government operations.

In short, I would like to reiterate that even if the quality of social policy is improved, reduction of poverty will depend on preserving fiscal health, giving maneuvering room to the private sector in investment and infrastructure, and increasing the rate of domestic savings; all this in the context of macroeconomic stability and growth generated by open economies, with greater internal and external competition.

Viability of integration is also closely linked to the increase in the investment capacity of our economies. All of our countries have massive unmet needs in physical structure and communications; in technology, machinery, equipment, and modernization in industry; and in what is equally important, the development of human capital.

Today there is a nearly universal consensus that the levels of public and private savings are too low to support economic growth in accordance with the needs of the people of Latin America, and insufficient to tap the full potential of the integration process. In fact, the worst enemy of integration and stability in trade policy has been macroeconomic volatility, which has its roots in inadequate rates of domestic savings, excessive dependence on external funding, and misguided allocation of investments.

This brings us to what we may call the critical factor for giving viability to integration by the year 2005. To make the needed investments for this transformation in infrastructure, machinery, and equipment, and in the social area, we must significantly increase our savings rates and guarantee that public and private investment is rational and transparent.

We have looked at the basic elements that I think are needed to make integration a reality in the Hemisphere. We have spoken about trade and economics, about social policy and the war on poverty, about modernization of the state, but perhaps not enough about democracy. In the Americas, prosperity, growth, peace, social justice, and equality all depend on democracy.

The war on poverty will not succeed unless we also fight for the supremacy of human rights, greater citizen participation, respect for ethnic minorities and women's rights, improvement of our public administration and justice.

Defense of the rule of law must go hand in hand with our struggle against arbitrary action and discrimination. The war on poverty is part of a larger struggle to ensure a decent life for everyone in the Americas. Integration, in the final analysis, only has meaning if it is synonymous for democracy, equality, prosperity, and growth.

Thank you.