Address by Dr. Jorge Vega Castro, Director General of the Andean Community General Secretariat at the opening ceremony of the Fifth Andean Business Forum
Guayaquil, Ecuador, May 14, 2002  

It is a matter of deep significance for the General Secretariat of the Andean Community to participate in this opening ceremony of the Fifth Andean Business Forum in the city of Guayaquil, the historical site where the Libertadores, Simón Bolívar and José de San Martín met on July 26, 1822 and where, almost two centuries later, this coming July 26^th, the Heads of State of South America will gather, in a continuity of the common aim for hemispheric unity.  

Ambassador Sebastián Alegrett, Secretary General of the Andean Community asked me to transmit his cordial greetings and wish you the greatest of successes in this Fifth Meeting of the Business Forum.  Events beyond his control made it impossible for him to be with us today at this important event.  

The Andean Community is celebrating its thirty-third anniversary.  In this long journey, we have built up important accomplishments that have enabled us to position ourselves as the world’s second most advanced integration bloc.  Today, we have Community legislation in place on such significant subjects as intellectual property, transportation, competition, investment, double taxation, infrastructure and services, among others.  

Unlike other regional integration systems, the Andean Community has been able to develop its own institutions and a transparent and balanced system for settling disputes.  All of these guarantee our businessmen that their investments and activities will not be disrupted.  

Today we can proudly affirm that, without a doubt, the Andean integration system has become an essential tool for promoting the economic growth of the Member Countries and their successful positioning in a highly competitive world.  At the same time, it is increasingly becoming a basic element for boosting the political, economic and social development of our nations.  

The growing diversification of the Andean Community’ export offering gives the production systems of the subregion the opportunity to develop and consolidate their comparative advantages by encouraging the specialization or complementarity of their output, as applicable, in order to satisfy the demands of the enlarged market or to permit our products to enter and assume a position in the international markets.  

Trade within the Subregion today involves double the number of NANDINA subitems that were traded among the Andean countries during the initial decades of the integration process.  The figures corroborate the extraordinary growth of that trade, from barely 100 million dollars a year during the first years of the process to up to 6 billion dollars a year at present.

Between 1990 and 2001, intra-Subregional trade flows experienced a growth of 14 percent a year, almost four times the average increase noted in Andean exports to the rest of the world, which amounted to 3.6 percent per annum.  And of this trade among the Andean countries, 90 percent consisted of manufactures with a greater value added than that of our traditional commodity exports.  

By way of example, and referring to our host country, according to General Secretariat figures, Ecuador’s exports to the other Community countries in 2000 rose 49 percent, while its worldwide exports increased only 15 percent.  In 2001, the ratio was a growth of 17 percent to a drop of 8 percent in sales to the rest of the world.  

Furthermore, during the period of heaviest growth in our trade –between 1992 and 1997-- Andean integration exerted a significant effect on paid employment associated with intra-Community exports and 323 thousand new jobs were created.  In Ecuador’s case, these amounted to 86 thousand.  

With all certainty, we can assert that the growth in trade among the Andean partners and between them and other countries is both quantitative and qualitative.  Significant increases in intra-Andean trade while international markets were experiencing a deep crisis is evidence of a performance that is almost anti-cyclical.  In this connection, we should point out that the consolidation of our enlarged economic space will help to reduce our level of dependence on foreign markets.  

In this context, Andean integration offers major challenges and opportunities for our production sectors.  In the first place, it gives entrepreneurs the opportunity to benefit from the advantages offered by the enlarged market by using economies of scale effectively.  

In the second place, it appears to be the ideal market for putting the competitive capacity and efficiency of production and service of Andean businesses to the test.  By making the most of the learning curve, they can develop their potential for successfully penetrating and positioning their products in international markets.  

And in the third place, it represents the natural scenario for the establishment and development of strategic alliances for the purpose of making it possible to profit more heavily from the subregion’s comparative advantages.  

The opportunities offered by Andean integration will be boosted in the degree to which the production sectors, and particularly the entrepreneurs, commit themselves to the shared objectives of the balanced and harmonious development of our societies, in the conditions of equity enshrined in the Cartagena Agreement.  

This means that the business sector must be actively involved in perfecting and consolidating the Andean system, leading it toward higher stages of integration, building the common market by the year 2005 by making timely and continuous use of both the political vehicles and the vehicles for trade promotion created for those purposes –namely the Business Advisory Council and the Andean Business Forums.  

Our progress has not been limited to the area of trade.  Today we have a common foreign policy in place; we are carrying out a social agenda to give a new dimension to Andean solidarity; we are executing a Community border development and integration policy and we are working together to define policies for sustainable development.  

A necessary part of our agenda is dedicated to our work in the area of macroeconomic harmonization.  It is the task of all of us to create the necessary climate for a macroeconomically stable Andean scenario where no abrupt changes in relative prices will destroy the efforts of years spent to create trade flows and offering clear horizons so that national and foreign investors can wager on the future of our countries.  

Today the Andean Community is facing challenges that are vital to our continued existence and future.  Our Heads of State decided to establish the Common Market by the year 2005, at the latest.  This means first perfecting the prior stages: the free trade area and the customs union, and then consolidating our vocation for integration with a clear vision of our shared interests.  

That perfecting involves, among other things, the adoption by the Community of the common external tariff and the elimination or harmonizing of practices that distort trade, such as the systems of zones for free trade and active perfection, incentives for intra-Andean exports, intra-Community safeguards and preferences for third countries.  

While these practices are not prohibited by Andean legislation, their continued existence creates growing trade problems and conflicts that hold back the rapid growth of our trade.  

It is also necessary to adopt a common agricultural policy, an area in which understandings among the production sectors are vitally important for safeguarding the overall competitiveness of the agroindustrial chains, consolidating and broadening the food security of our peoples, particularly the less favored population, and responding with common policies to the sensitivities of our agricultural products in a world situation that is very complex for this important sector.  

Attaining a customs union will not only allow us to create more jobs and produce more competitively in order to enter the international market, but above all will equip us to act more coherently and bring greater weight to bear than if an individual country were to act alone, in the international negotiations we have underway with third countries, either in the context of the FTAA and the WTO or with the European Union and the Mercosur.  

In sharp contrast to the clearly growing intra-Andean trade, the flows of direct investment within the Subregion continue to be very limited and even during the best years never topped 200 million dollars, which is barely 2 percent of the annual flows of direct world investment in the Subregion.  

It is up to the business community and the governments primarily to address this issue.  The building of the common market, which will involve the free circulation of goods, services, capital and people, will offer significant opportunities for boosting this investment.  

Among the projects that are under study, we have a proposal to reinforce the insurance on national financial deposits.  Experience has shown us that banking crises are unfortunately frequent in the Subregion and that their resulting fiscal costs drag on for years, undermining the confidence of savers in the local financial system.  Bolstering deposit insurance systems with Community mechanisms in order to give them a broader coverage and make them more effective, can help to cut down the possibilities for systemic banking crises.  

Another important project has to do with the studies that are being advanced to put an Andean savings fund into effect that will cushion the impact on our economies of the volatility of international commodity prices, on which our export earnings and fiscal revenue largely depend.  Studies are also being conducted for the purpose of boosting domestic saving by starting up Andean Community instruments (bonds or certificates of deposit) that will allow investors to place their savings in the Subregion itself at better rates and with the same security they would obtain in the traditional banking centers abroad.  

It is ironic that money that leaves the Andean countries and is placed abroad at extremely low depositor rates of interest, returns to the Subregion in the form of loans at scandalously high rates of interest that do not reflect an acceptable intermediary’s margin, but a perception of risk influenced by momentary conditions that are sometimes created by events outside the subregion.  

Needless to say, the issuing of instruments of this kind could breathe new life into the Subregion’s drooping stock markets, which are dwindling in numbers and the sizes of their operations.  

I would like to close by thanking and congratulating the government of Ecuador and CORPEI for their felicitous organization of this forum and to express the sincere wishes of the General Secretariat for the success of this meeting.  I would also like to invite you to visit our stand, where you can find out more about the tools we have available to help our Andean production sectors.  

Thank you very much.