I would like to thank the organizers of the 1999 Johns Hopkins Symposium on International Affairs for the kind invitation to join you this evening. It is a pleasure for me to be here and to be able to share some thoughts with you on the changing parameters of the international system as we approach the millenium.

The topic that I have been asked to address, that of regional integration in the Americas, is one of great current relevance for the countries of the Western Hemisphere. I will begin by considering what we mean when we talk about regional integration in an increasingly globalized world. I will then briefly outline the evolution of the recent wave of regionalism in the Americas. The focus of my presentation will be the culmination of this regional integration: the Free Trade Area of the Americas, or FTAA. I will give you a report on the status of these negotiations and discuss the challenges that the process is facing. Finally, I will share with you some of my views on the future of this process.

THE CONCEPT OF INTEGRATION

In discussing economic integration, we must first ask "What do we mean by integration?" The term integration incorporates a number of different elements, including the diminishing economic significance of political boundaries, the ease of engaging in commercial and investment exchange of goods and services, and the increasing influence our actions have on one another.

Integration, and in turn, the much-discussed phenomenon of globalization, has been brought about by two important factors: technological change and trade and investment policy. Technology has shrunk geographic and economic distances through declining costs of transportation and the growing ease of communication and information processing. Between 1950 and 1990, the average air transport revenue per passenger mile declined by a third. Only twenty years ago a three-minute telephone call between New York and London cost about $32. Today, this same three-minute phone call costs only $3 ---- and is rapidly being replaced by the one-minute fax or the instantaneous E-mail that we use daily. A recent report suggested that in the United States alone, 5 million people now earn their living from the Internet. Five years ago this number would have been in the thousands. These innovations have substantially reduced the obstacles created by geographic distances.

Policymakers have supplemented technology by reducing trade and capital barriers at the unilateral, regional and multilateral levels. Countries are increasingly entering into free trade areas and custom unions with their neighbors, and at the multilateral level, the creation of the World Trade Organization (WTO) and the membership of a vast number of developing countries in this organization has changed the face of international trade.

As trade flows have grown over the past quarter century, the composition of trade has changed substantially, notably with the expansion of trade services and the greater involvement of developing countries. While in 1950 less than ten percent of global output was exported, 25 percent of our goods are now destined for consumption in other countries. In the past decade, trade has grown twice as fast as output, and foreign direct investment has grown three times as fast. Daily foreign exchange turnover has increased from $15 billion in 1973 to $1.2 trillion in 1995. Driven by the activities of transnational corporations, various stages of the production process are located in different countries, a phenomenon now referred to as the slicing of the value-added chain.

At the same time, the international trade agenda has become increasingly globalized. While in 1960 40 countries were signatories to the General Agreement on Tariffs and Trade, there are now 133 WTO members, with 32 other countries having expressed an interest in joining. The range of issues has also increased. While the first seven Rounds of GATT talks focused on tariff reductions and pulling down barriers at the border, since the Uruguay Round the agenda now includes new trade-related policy areas such as intellectual property rights, competition policy, investment issues, government procurement disciplines and modern dispute resolution mechanisms. It has also undergone sector expansion to embrace agriculture, and to cover the full range of services including: financial services, insurance, telecommunications, transportation, professional services, and others. As they move forward in their negotiations, countries must now consider the effect that their own domestic policies will have on other member countries.

INTEGRATION IN THE AMERICAS

These trends are most evident in the Western Hemisphere. As we approach the millenium, the economic geography of the Hemisphere looks quite different than it did a half or even a quarter century ago. Nearly all of the countries of the Americas have democratically elected their current governments, and they have taken great steps towards openness -- to the rest of the world as well as to each other. Over the last decade, the countries of the Americas have made great strides towards achieving political and macroeconomic stability, strengthening their domestic financial systems, and making the transition towards more open trade and investment regimes. Since the late 1980s, average tariffs in Latin America have fallen from 40 percent to 11 percent. Trade among the countries of Latin America more than doubled between 1990 and today. Traditionally protectionist economies have opened their markets. Lower tariffs have helped to stimulate trade and integration efforts and such activity has formed stronger economic linkages.

The fate of the countries of the Americas is intertwined. We are tied to one another, for better or for worse, through economic and political ups and downs by geography, history, culture and commerce. Within the Americas, we exchange more than one billion and a half dollars worth of goods every day. Of the over $1 trillion exported by the Western Hemisphere countries, over 55% stays within the Americas. The strong interdependence of the countries of the Americas means more than trade and capital flows. We also often work in different parts of the same company, we breathe the same air, fish in the same waters, are affected by each other’s financial crises’.

In addition, we share the same goal: a framework for stability and prosperity in the Americas. This will provide us with a platform from which we can address the challenges of our Hemisphere: strengthening democracy; addressing and improving the problem of income inequality; reducing poverty; enhancing education and providing for the sustainable development of our countries.

THE FREE TRADE AREA OF THE AMERICAS

It is this goal that brought together the heads of state and governments of the thirty-four democratically elected countries in the Americas to formulate a Hemispheric agenda at the first Summit of the Americas in Miami in 1994. Also bringing them to reconvene to emphasize these goals last year in Santiago de Chile.

Integration in the Americas is being codified in the process of the negotiations to create a Free Trade Area of the Americas. This initiative aims to establish a Western Hemisphere free of barriers to trade and investment. The FTAA will provide a framework for commercial relationships among the countries of the Americas. It will serve as a "constitution" for hemispheric trade -- setting out the do's and don'ts of accepted commercial practice, establishing a forum for continued negotiations and, essentially, creating a mechanism for settling disputes among members. The FTAA also serves to "lock in" liberalization commitments made by countries towards each other thus consolidating part of their economic development strategies.

The FTAA is being built on a number of already established principles. The Agreement will be negotiated by consensus. This means that each country -- no matter how large or small, poor or rich - will have the same vote. St. Lucia and Guatemala sit at the same negotiating table with their Brazilian and U.S. partners. The agreement will be balanced and comprehensive -- and it will take into account the needs of the smaller economies, an important element in a hemisphere comprising such diversity in size and levels of development. As well, the agreement will be a single undertaking. This is an important element by which all countries will accept each and every obligation of the agreement. Countries will not be able to pick and choose, but will agree to the complete set FTAA rules.

Another main principle of the FTAA is WTO consistency. All but one FTAA country are WTO members, and all have agreed to set the WTO as a "floor" for the FTAA. This means that countries have accepted the underlying goal of Article 24: that states that the FTAA will not be trade diverting to non-member countries. In addition, WTO principles in the covered disciplines will set the standard for the FTAA, which will be a state of the art agreement.

The expanded trade agenda is now standard not only to the WTO but also to all the new generation of free trade agreements such as NAFTA, the bilateral free trade agreements that Mexico has negotiated with a number of countries in Central and South America, the Chile-Canada agreement and many others throughout Latin America. It is also the standard against which MERCOSUR, the Andean Community, Central America and the Caribbean are renegotiating and deepening their existing commitments. Thus, while a few years ago trade negotiations were about measures at the border, a large amount of what is negotiated in modern free trade agreements pertains to domestic laws, rules and procedures, and national treatment to foreign investors. This expansion of the areas encompassed within trade disciplines is giving way to deeper forms of regional and economic integration, a whole new paradigm for trade negotiations.

The FTAA negotiations are based on a wealth of information and analysis compiled during the preparatory phase. As the second round of meetings of the negotiating groups begin, negotiators from 34 countries have begun to discuss issues ranging from tariffs and nontariff barriers to agriculture and to intellectual property, competition policy investment and services. An advisory group of public and private sector experts has begun to examine the issue of electronic commerce and the role this will play in hemispheric trade. A consultative group is looking at the needs and conditions of the Hemisphere’s smaller economies. Also, a mechanism has been developed through which members of civil society can express their views.

A month ago, the FTAA Trade Negotiating Committee (TNC) met in Suriname. The meeting dealt with both administrative and substantive matters. The main accomplishment of this meeting included making significant progress in establishing management guidelines for the full set of FTAA entities, including the TNC, the Negotiating and Consultative Groups, the Administrative Secretariat and the Tripartite Committee. These discussions led to the establishment of a kind of "manual" for the operation of the FTAA process.

In regards to substantive matters the Vice Ministers received reports directly from the Chairs of the different NGO’s and Committees about the first round of meetings. A key point in the agenda was also the discussion of business facilitation measures to be adopted before the year 2000. The meeting agreed to focus primarily on the area of customs, and on a procedure for achieving a broader consensus about a significant package of business facilitating measures before the Canada Ministerial meeting that will be held this November.

CHALLENGES TO BE CONFRONTED

While talks are progressing, and while countries are committed to the creation of a Free Trade Area of the Americas, a number of challenges remain.

One such challenge is the domestic political will of the countries of the Americas. A prominent example of this challenge is the lack of fast track negotiating authority in the Untied States.

Another element that is often held as a challenge is the new "Millenium Round" proposed by the WTO. While some believe that this new round may divert energy from the FTAA, I believe that the two processes are compatible -- indeed complementary. The FTAA negotiations will be a complex exercise in defining in which areas the FTAA will establish stronger disciplines and will provide deeper market access than the WTO, and in what areas the FTAA will not go beyond multilateral commitments. Informed discussions about these issues are one of the more challenging analytical areas for the years to come.

The most important task that we currently face, in my opinion, is that of keeping the current financial crisis from undermining all of the positive steps that countries have taken over the past decade and in recent years to liberalize and integrate their economies. The same shrinking costs of doing business that has expanded economic opportunities and allowed us to take advantage of the good fortunes of other countries has also made us more aware of each other’s economic difficulties. Thus, at the same time that a growing economy in one part of the world means a greater demand for another country’s goods, an oil shock in the Middle East, a devaluation in Mexico, a financial crisis in East Asia will touch the lives of citizens all over the World in England, Brazil and the United States.

Currently we are facing a financial crisis, its magnitude is not yet fully known. The countries of the Americas are all facing difficulties. The current financial crisis, which began in Thailand and Indonesia and has traveled around the world, is having a very real impact on the daily lives of people everywhere. Our own hemisphere is beginning to see these effects manifested in a number of ways – from investment outflows to currency pressures to firms having difficulties paying their employees. The UN Economic Commission on Latin America and the Caribbean has announced that GDP growth in Latin America has diminished by 1 percent over the past year. The crisis has been felt especially strongly in the Southern Cone, where the second period of the year, GDP growth fell by almost 2% from the previous period.

It is essential that countries do not react to the present circumstances by implementing protectionist measures – neither in the trade nor financial sector. No matter how tempting it is to try to mend immediate problems with the short thread of protectionism, this solution will ultimately fray -- leaving those economies even more exposed than before. No country, as WTO Director General Renato Ruggiero recently emphasized, has an interest in building walls against productive investment flows from outside. Trade, investment and technology are interlinked and inseparable in today’s world. Protectionism is, as has been seen in the past, a self-defeating strategy. Even worse, it can be contagious. Maintaining a free flow of goods and investment is the best way to ensure an early recovery. Recently, we have seen in our own Hemisphere an example of a county facing a financial crisis that did not have to turn inward. In the wake of the 1994 peso crisis, Mexico did not raise barriers towards its NAFTA partners, and, by all counts, rapid export growth to the United States in the next year helped bring Mexico out of its 1994-95 crisis and resume normal growth.

While remarkable, these trends are not new. The early twentieth century world was also one of rising innovations and falling barriers to trade and capital, with railroads and steamships driving goods through barrier-free borders. This trend ended with World War I --- and was truncated when countries went down the path of protectionism, continuing the war on an economic front through competitive devaluations and retaliatory tariff barriers in the 1930s. Trade contracted and international capital flows dwindled as countries imposed capital controls to insulate themselves from the international economy. As we all know, the result was not positive.

Ladies and Gentlemen, it is essential that within this Hemisphere short-term pain not blind us to long term gains. The Free Trade Area of the Americas, which is to be in place by 2005, is a long-term project. And it is a project that must be sustained.