Ministerial meeting for the free trade area of the Americas

Statement by ECLAC Executive Secretary, Mr. José Antonio Ocampo in the Ministerial meeting for the free trade area of the Americas

The opening of negotiations for the creation of the Free Trade Area of the Americas, as announced by the Heads of State of the Western Hemisphere at the second Summit of the Americas in April 1998, is a landmark event in the history of the hemisphere's trade relations. This ambitious project, which would have been unimaginable just a few decades ago, offers us an opportunity to build a lasting, mutually beneficial relationship in the Americas.

During the past 18 months, under the chairmanship of Canada, the FTAA negotiations have proceeded on schedule. I would like to commend the Government of Canada for the leadership it has provided throughout this period and to thank it for the hospitality it has shown us here. Although it will take several more years to complete this process, the negotiations have already borne fruit. In particular, the ongoing interaction of 34 teams composed of a total of over 1,000 negotiators has contributed to a better understanding of different countries' and subregions' positions, has led to the compilation of a considerable volume of information on the different countries' trade rules, has permitted the identification of specific areas for business facilitation and, most importantly, has engendered mutual trust.

The progress made during these months is all the more significant when viewed within the context of the difficulties that Latin America and the Caribbean have experienced over the past two years as a consequence of a series of natural disasters and the international financial crisis. Specific impacts of the crisis have included unreliable access to external financing, deteriorating terms and conditions for borrowers and plummeting commodity prices, together with a contraction of intraregional trade flows, especially among the members of South America's major integration schemes, Mercosur and the Andean Community. As a result, the region has witnessed a steep downturn in its pace of economic growth and, in nearly half of its countries, outright recession. This year, for the first time in the 1990s, production activity will decline slightly in Latin America.

Despite this adverse environment, the countries have maintained their commitment to the free trade and integration schemes that have been the cornerstone of the trade boom experienced by the region throughout this decade. Latin American and Caribbean exports have expanded more swiftly during the 1990s than at any other time in the region's history, posting a real annual rate of increase of 9% and thus outstripping the already high growth rate of world trade.

The buoyancy of trade has been coupled with record growth in foreign direct investment, which has jumped from annual averages of slightly over US$ 10 billion in the early 1990s to figures ranging between US$ 50 billion and US$ 60 billion during the last three years. This vitality is a reflection of a change in attitude in all our economies as a positive view begins to be taken of the role played by foreign direct investment in the development process, of the steps taken to open up what have traditionally been public-sector activities to private investment and of foreign firms' involvement in the region's various integration and free trade schemes or in the preferential arrangements that have facilitated the growth of trade during the present decade. In addition to the contributions made by foreign direct investment in terms of investment, technology and commercial networks, during the recent crisis it has become evident that this type of capital is also less volatile ?a not unimportant fact in a financial world marked by sharp boom-bust cycles and by contagion.

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The great challenge of hemispheric integration will be to ensure that the creation of a free trade area for the Americas will act as a stimulus for the process of changing production patterns with social equity. This is what the Heads of State and Government who gathered at the first Summit of the Americas had in mind when they said that "free trade and increased economic integration are key factors for raising standards of living, improving the working conditions of people in the Americas and protecting the environment".

In order to make sure this happens, free trade and integration must go hand in hand with an effective, efficient restructuring of production activities to permit the development of the systemic competitiveness that is essential to success in a globalized world. It is therefore crucial for trade liberalization to be accompanied by higher levels of investment, better systems for technology transfer and technological capacity-building, support for innovative activities in each country and for the production chains that serve as the foundations for the region's export sectors, effective instruments for promoting new exports, mechanisms for restructuring uncompetitive sectors and firms, means of helping small and medium-sized enterprises to participate in new trade flows on a competitive footing, improvements in the physical and social infrastructure needed to back up dynamic economic activities, and the creation of private and public institutions and joint ventures capable of fostering a competitive and dynamic form of productive development. Far from undermining a freer trade environment, the development of such instruments is, in our view, an essential counterpart, one that is needed in order to ensure the efficient utilization of the opportunities offered by such an environment and, ultimately, its very sustainability.

This new scenario also calls for an active social policy to ensure the development of the human capital needed to compete in today's more competitive markets and to help ease the distributional tensions that may be generated by trade liberalization processes. As part of this effort, a number of trends that have emerged in some Latin American and Caribbean countries during the 1990s --including sluggish formal job creation and widening income gaps between skilled and unskilled workers? will have to be reversed.

The consolidation of stability and growth in the region is vital in order to forestall destabilizing crises that could disrupt trade flows. Within this context, the recent international financial crisis has made it glaringly clear just how vulnerable the region is to cyclical swings in external finance. The region therefore has to determine what types of instruments it needs to cope with these situations and, in particular, what types of tools it can use to encourage the entry of less volatile forms of capital and reduce the social costs of economic crises.

Finally, I would like to stress the fact that FTAA is one of the most ambitious ?and, hence, most complex-- negotiation processes in history, one that involves an extremely varied assortment of countries, ranging from the world's largest economy to some of its smallest ones, from the most highly developed country of all to many that are just beginning to embark upon the first few stages in their development. For the smaller and less advanced economies, this negotiation process raises uncertainties and demands considerable adjustments. The productive fabric of these economies is made up of small, technologically unsophisticated firms that lack access to the financial resources and skilled personnel needed to function in a more competitive environment. Substantial changes will also have to be made in some of these countries' tax systems in order to adjust for the loss of income from foreign trade. Financial, technological and other types of mechanisms will therefore have to be devised as part of a determined, unified effort to help the smaller and less advanced countries make an orderly transition into this hemispheric free trade area while safeguarding their legitimate interests.

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Distinguished Ministers:

As a member of the Tripartite Committee, ECLAC is honoured to support this process. As its Executive Secretary, I am personally committed to seeing the Commission become a much more active participant in the tasks that you have set before us. I am proud of the work that my colleagues have done and would like to reaffirm to you all, once again, our commitment to this great hemispheric undertaking.