Speech by Andean Community Secretary General Guillermo Fernández de Soto, at the Second FTAA National Forum “From the ATPA to the historical opportunity of the FTAA”
Lima, September 26, 2002

Thank you for having invited me to address this important forum. I would like to start off with an emphatic declaration: trade offers all countries an extraordinary opportunity. It makes them more economically efficient and induces them to concentrate on that which they do best.

That is the conclusion reached throughout history and there is no reason why it cannot apply to the Andean countries, as well.

The Andean Community was not born to turn away from trade with the world, but to make better use of it, in order to be able to negotiate under improved terms in the complex and often confusing labyrinth of world trade.

Needless to say, our vision of world trade in 1969, when the Cartagena Agreement was signed, was far different from what it is today. The word “globalization” had not even been coined. Nation-States relied far more on their individual power, on the effectiveness of their instruments than they do today. The underlying spirit, however, remains unchanged: to put together a united platform in order to benefit more fully from international trade.

Save for the geographic distance involved, the case is somewhat similar to what occurred in the European Community. We would be hard put to unearth in today’s sophisticated network of European institutions the simple structure outlined by its promoter, Jean Monnet, even before World War II came to a close.

I believe that this model could, in many ways, be an inspiration to us, could offer us food for thought: the Andean Community is a process, an ongoing task and, as Monnet dreamed in the case of Europe, a continuing sum of small, incremental steps.

I would like to add something else this afternoon. Integration is far more than just an endless discussion of tariffs. It is not limited to trade and one of my aims, as Secretary General, is to highlight all of the other dimensions of our Community project: the social, political and cultural.

Trade is, however, without a doubt a crucial point. Integration models have always sought to create larger markets, sole currencies that would facilitate trade within such markets, and external tariffs for dealing with the rest of the world.

The FTAA offers us a basic opportunity in this context. We can create a huge hemispheric free trade area and make the Americas the magnetic center of the world. At the same time, however, this opportunity raises many issues to be pondered. What is the point of negotiating market access for goods if, for example, domestic support and export subsidies are kept in place in the agricultural sector? What is the point of negotiating if access quotas are maintained for sensitive products?

These reflections go even further, touching upon, perhaps, the very heart of Andean integration. What chance will the Andean countries have if they decide to negotiate individually, without first having defined a common trade policy? What are the advantages of negotiating using national tariffs, without first having defined a common external tariff?

It is essential for the Andean Community to have a trade policy toward third countries that is in line with integration objectives, using a common external tariff on which Community offerings can be based, even while specific exceptions or suspensions can be maintained.

We are facing a major challenge that must be dealt with immediately: the need to fulfill the Presidential mandate handed down last July in Guayaquil, to adopt a Common External Tariff in less than one month’s time -by October 15th, at the latest- as an essential element of Andean integration and of our economic negotiations with third countries, particularly within the FTAA.

A Common External Tariff without loopholes or exclusions must cease to be our continuing, yet flexible and progressive aim. Our most immediate and pressing task is to make this a reality for all of our countries before it becomes meaningless in the avalanche of hemispheric and multilateral negotiations and bilateral negotiations with the United States and the European Union.

It should be recalled that the Andean Community has already set itself the goal of consolidating a common market by the year 2005 and before that of reaching a fully operational Customs Union through the application of the Common External Tariff.

As I ventured to say in my introduction to this talk, this means, on the one hand, laying the groundwork for the application of a joint trade policy toward third countries and, on the other, fully liberalizing the flow of goods, services, capital and people among the Andean countries.

Andean integration, as it moves toward the described objectives, is working to develop an open system with other Latin American countries, carries out joint negotiations with the Mercosur, participates in the negotiation of the Free Trade Area of the Americas (FTAA) and has proposed the launching of negotiations with the European Union to forge an association agreement that will include a free trade area.

In this context, it is essential to reinforce the Andean Community’s negotiating position with the FTAA. This will allow us to continue participating as a Community with renewed strength and coherence in meeting the challenge of creating a Free Trade Area of the Americas, while safeguarding our single spokesmanship that has enabled the Andean Community to play an important role in drafting the Agreement.

The general principles that will govern the FTAA negotiation process were set down in the Declaration of San José (1998).

The key principle established in that Declaration is the single undertaking, which means that nothing will be conclusively negotiated until everything has been negotiated. Other aspects are decision-making by consensus, the coexistence of bilateral and regional agreements with the start-up of the FTAA, the obtaining of mutual and larger benefits for all participants and, finally, the consideration of differences in level of development.

These principles demand the defining of the Andean Community’s objectives and priorities in these negotiations. These are none other than to consolidate and improve our economic role in the hemisphere by reinforcing the Andean economic space as a platform for reaching the hemispheric and other world markets; to position our main products in foreign markets; to make the most of the advantages offered by bloc negotiations and to reach a better balance between the negotiations and their results.

In this connection, the general principles to be followed by the Andean Community in the framework of the FTAA involve attaining a joint position on both proposals and spokesmanships, based on Community provisions and recognizing the principle of horizontal and differential treatment according to the level of development.

Considering these principles and objectives, we can identify some of the following substantive aspects:

a. The coexistence of Subregional Agreements

As I already mentioned, the Andean Community’s short-term proposal is to consolidate a common market by achieving the unimpeded circulation of factors (goods, capital, services and people) and harmonizing their treatment both within the Subregion and with regard to third countries.

The FTAA, for its part, is a plan for liberalizing markets. For that reason, we consider that it is essential for the FTAA to operate in harmony with the already existing Subregional agreements. Andean integration will be able to develop in the Americas and the multilateral context, in the degree to which the Andean Community strengthens and consolidates its Communal project.

Allow me to cite a few examples: the existence of an Andean Union, even if imperfect, would allow for our orderly interaction with other economies in the hemisphere, if based on an operating Common External Tariff and Free Trade Area. This would result in our coherent and orderly opening as a bloc to third countries.

The harmonized coexistence of Andean provisions with those that are devised within the FTAA would make it possible to strengthen the Andean market and, above all, enhance our competitiveness vis-à-vis third nations, once the Free Trade Area of the Americas is operational.

From the viewpoint of regulatory provisions and specifically of those to control unfair competition, the mechanisms in place in the Andean integration movement offer an enviable basis for the negotiations and for coexistence with the provisions that emerge within the FTAA. For that reason, it is important to build up our joint capacity for participation in the agreement and its implementation.

b. The Principle of the regional Most-Favored-Nation

The regional most-favored-nation principle, together with the need to consider the differences in levels of development, are another aspect that should be taken into account.

The questions to be asked here are really quite simple, but their answers can be very complex. For example, should benefits that are granted through negotiation to countries other than the United States, Canada, Brazil and Mexico be automatically extended to all participants in the negotiations without exception? The answer would appear to be an obvious yes, with the exception of the preferential treatments that are established for the smaller economies.

However, should the concessions granted by the Andean Community to other country groupings described above be automatically extended to the most developed countries under the most-favored-nation principle? The answer in this case is no longer obvious and differential treatment of this subject would appear to be appropriate.

These two examples illustrate how the most-favored-nation principle should be developed in the FTAA in order to provide for differences in level of development. This would imply the existence of a regional most-favored-nation clause that should be applied on the basis of country categories: the most developed countries, the intermediate economies and the smaller economies.

The use of a pure most-favored-nation scheme could end up by intensifying imbalances and differences in development. On the other hand, the absence of this principle, accentuated by differences in levels of development, would mean having to embark on bilateral negotiations, with their attendant complexity and the risks involved in negotiation for countries that possess less institutional and human resources.

Hence, the importance of developing a regional most-favored-nation principle that takes into consideration the levels of development.

c. Balances in negotiation

When approaching the subject of balanced negotiations, the results of the negotiation must be foreseen, both in terms of market access and regulatory issues.

Market access encompasses agricultural and non-agricultural goods, services, investments and government procurement.

In the case of non-agricultural goods, it is important to define the base rate for starting the tariff reduction process.

It is essential, therefore, for the Andean Community to have in place a common external tariff, a definition of criteria that takes account of the differences in levels of development, provisions that eliminate all types of non-tariff barriers, and an appropriate system that does not impede market access.

In the case of agricultural goods, access to our markets should be made conditional on the removal of so-called export subsidies, including financial subsidies; the disciplining of domestic support; and the elimination of quotas, seasonal tariffs, specific duties, and the para-tariff type protectionism that could result from the excessive use of sanitary and phytosanitary requirements; in addition to the maintenance of an agricultural price stabilization system and a sector safeguard for the developing countries.

Many of these aspects are not new, for they are being negotiated today in the WTO.

Undoubtedly, balanced negotiations can exist only in the degree to which the developed countries move toward eliminating their export subsidies and disciplining their domestic support. Therein lies the importance of conditioning their access to our agricultural markets until that has been accomplished, for the objective of the negotiations, as we understand it, is a real opening of the markets.

In the cases of access to services and government procurement, advances in the multilateral terrain have been insufficient, to say the least.

Access to our markets should also be made conditional on the possibility of carrying out pro-active policies, with incentives for promoting strategic alliances and joint-ventures that would make it possible to meet the conditions for attracting investments, incorporating technological advances, transferring technology, developing human capital and promoting exports.

The opening to professional and personal services is of basic importance to our countries. The question to be asked here is whether the balance we obtain in this area will lead to advances in what has been negotiated in the WTO.

In regard to investments, we are being asked to open our markets to their so-called pre-establishment. Will that attract larger flows of foreign investment? The position of the Andean Community thus far has been to limit access only to post-establishment investments, based on a clearly-established definition of criteria for exceptions and reservations and of guarantee commitments.

Regulations for negotiation of government procurement should be designed to ensure total transparency of information on markets, opportunities, costs, regulatory provisions, and evaluation criteria, among other things. They should also include a clear and equitable definition of thresholds and coverages with regard to government institutions and the government procurement of goods and services.

Last of all, in order to achieve balanced negotiations, important advances must be made on matters such as anti-dumping and competition policies, a clear definition of differences in levels of development and the start-up of the hemispheric cooperation plan.

The responsibility of the Andean Community vis-à-vis the FTAA unquestionably involves building up our common market, improving our bloc negotiating position, defining our joint offerings and continuing to speak with a single voice.

The FTAA will constitute an opportunity for the Andean Community, provided that it offers a real opening of the markets of the developed countries to our products, whose results go beyond the advantages provided within the multilateral framework of the WTO.

To conclude, I would like to add a more general thought. The General Secretariat has no monopoly over the integration movement. Rather, we are a driving force, a facilitator, a promoter, perhaps -to use an Anglo-Saxon expression- a “broker” of the process. For integration to exist, everyone must be involved; otherwise, it’s impossible. That is why, among other reasons, I am so pleased to have had the opportunity to address you today.

Thank you.