ILO Symposium on Labor Issues in the Context of
Economic Integration and Free Trade: A Caribbean Perspective

I would like first to thank the International Labor Organization (ILO) for inviting me to share with you some thoughts on the opportunities and challenges confronting the Western Hemisphere, and the Caribbean in particular, in economic integration and its relationship with labor issues.  I am honored to address this distinguished audience, particularly at this critical moment in the world economy.

The challenges are indeed enormous. The technological revolution and globalization are producing massive and rapid changes in the world economy, in the business paradigms and in economic theories and policies.  While one aspect of globalization is technology-driven, another is policy-induced.

For instance, today, trade talks have been truly globalized in two senses.  First, geographically, because while in 1960 there were only 40 countries members of GATT, today 133 countries are members of the WTO, and there are 32 candidates who want to join, which include among others: China, Russia, a number of ex-Soviet republics, Saudi Arabia, Jordan and Chinese Taipei.

Secondly, trade talks have also been globalized thematically, expanding the system of rights and obligations that countries negotiate and enter into. As recently as ten years ago, trade talks and negotiations included almost exclusively border measures such as tariff and non-tariff barriers, subsidies and some technical standards mainly of a sanitary or phytosanitary nature.  In contrast, today, and particularly after the Uruguay Round, the trade agenda has been expanded drastically, to include 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 expanded sectorially to embrace agriculture, and to cover the full range of services including: financial services, insurance, telecomunications, transportation, professional services, and others.

This expanded agenda is now standard not only at the WTO but also in 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 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 technology-driven and the policy-induced forces working together have produced a tremendous increase in the degree and scope of economic interdependence and in the flows and in the structure of international trade and investment.

It is this higher degree of interdependence involving flows of financial capital, trade and FDI, that presents new challenges to global management and coordination. Because just as the shrinking costs of doing business have expanded economic opportunities and allowed countries to take advantage of other countries’ good fortunes -- at the same time  they have made economies more vulnerable to each others’ economic difficulties, as the problems in Asia and, more recently, the global financial crisis demonstrate.  This crisis, which started as a financial one, is now spilling over into the real sector of the economy and is affecting investment decisions, the cost of credit, the dynamics of markets and economic growth rates around the world.

Never before, in the whole post war period has cooperation and coordination between governments been as urgently necessary, with the participation of international organizations and the concurrence of the private sector, in order to reduce the international transmission of macroeconomic instability, ameliorate contagion effects, and avoid scenarios of fragmentation and return to protectionism that would only be part of the problem instead of being part of the solution.

These general and provocative comments are as much as I am going say today about the big picture, because what I would like to do is to focus more narrowly on an overview of the FTAA process, its present status and its prospects.

Specifically, I would like to divide my remarks in three parts:

1.  First, some comments on the results of the recent round of FTAA trade negotiations held in Miami in September-October, and the Suriname Meeting of the TNC last december.

2.  Second, a brief mention of the main factors that can be anticipated to have an important influence on the course of the FTAA talks and its final result, as well as on the development of economic integration processes in the hemisphere at large.

3.  I will finish arguing that there are important collateral benefits of the FTAA negotiating process itself, that is to say, benefits that we are already having during the negotiating stage and which do not have to wait until 2005 to become a reality.

I. THE BEGINNING OF NEGOTIATIONS

As you know the FTAA negotiations started in Miami during the month of September.  During this month there were meetings of the nine negotiating groups agreed in the structure of the negotiations in the San José Declaration.  These groups are:

In addition, during the month of October, the three special committees contemplated in the structure of the negotiations also met in Miami:

After the San José Ministerial in March, the Trade Negotiating Committee met for the first time in Buenos Aires, Argentina, in June.  And it met again in Suriname on the 2-3 December.  It will have an extraordinary meeting in Miami in April and a formal meeting again in July 1999 in Cochabamba, Bolivia.

Overall, the NGs meetings of September and October have brought together more than 900 trade negotiators from the 34 countries participating in the FTAA.  Without a doubt, this first round and successive rounds of negotiations constitute an extraordinary effort of political will, technical talent and strategic positioning of the participating countries.

During the September and October Round, the attention of all NGs focused on agreeing on a work program from now to the Trade Ministerial Meeting in Canada in October, 1999, a task that all groups completed in a satisfactory manner.   Some of the groups went even beyond this, and started some substantive discussions about points included in their terms of reference.

Despite some negative conditions such as the absence of Fast Track authority in the US, the global financial crisis, and the threat of contagion effects on Latin American economies, the point I would like to stress  to you today is that, despite all this,  the FTAA delegations came to Miami in September-October and last week to Suriname to carry out their work and they did it, and this, it seems to me, is going to be the spirit in the meetings from now to the Canada Ministerial.

It is also important to note that the internal cohesion in the negotiating table of some subgroups of countries has significantly increased:

• It is notable how the Andean Community has been speaking with a single voice this year in all NGs, and in the TNC.
• MERCOSUR continues to be very disciplined in presenting their positions jointly and with intense previous consultation.

The Caribbean does not yet have a perfected joint approach in the negotiations, however, recent development point strongly in this direction.  The Caribbean has recently created a new structure for international trade negotiations called the Regional Negotiating Machinery, and its influence is starting to be felt in the meetings.

The only exception to this joint approach is Central America.  However, individually the Central American countries participate very actively and have an important share of responsibility in conducting the process because Nicaragua has the Chair of the Services NG, Costa Rica Chairs the Investment Group, Guatemala has the Vice-presidency of the Advisory Group on Smaller Economies, El Salvador the Vice-presidency of the Market Access Group, and Honduras the Vice-presidency of the Government Procurement Group.

The seriousness and commitment of the delegations in making the homework and in carrying out the tasks requested by Ministers and viceministers is also reflected in the fact that all the Groups elaborated a work program that included more meetings than originally contemplated.  Most groups are planning ot meet three to four times before the next Ministerial.

Results from the 2^nd  Meeting of the TNC in Suriname

A month ago, the FTAA Trade Negotiating Committee (TNC) met in Suriname.  The meeting dealt with both administrative and substantive matters.  The main results of the meeting include 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.

As regards substantive matters the Viceministers received reports directly from the Chairs of the different NGs 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 facilitation measures before the Canada Ministerial meeting.

III. KEY FORCES WITH NEGATIVE IMPACT

Now, having said all this, it is important to note that, frequently, analysts and observers express doubts and concerns on whether this trade project, the most ambitious ever launched in the hemisphere, is actually feasible.  What are some of the possible outcomes of the FTAA talks?  What are the main factors that will influence the likelihood of alternative outcomes?.

As I said, I believe that the first round of meetings has shown an enormous amount of commitment to the process, and this bodes well for the future.  However, clearly, there are a number of factors that tend to exert a negative influence both in the FTAA talks, and in the economic integration processes in the hemisphere in general.

Among these, there are six key ones, that in one way or another constitute a threat to the process and that are already weakening or could eventually weaken even more the commitment of countries with the process, or could affect the rhythm or pace of negotiations.

• The continuing absence of Fast Track authority in the US.
• The scope and intensity of the new round of multilateral trade negotiations at the WTO, in services, agriculture and the so called Millenium Round.
• The global financial crisis.
• The scope and intensity of negotiations between countries or groups of countries in the hemisphere with other regions, mainly with Europe.
• The extent of bilateral frictions between the main trading partners in the hemisphere.
• The position and activism that civil society groups adopt in relation to free trade and globalization.

1. Fast Track

“Fast track” legislation has both a symbolic and a real impact on trade negotiations. Symbolically, passage of “fast track” legislation demonstrates public support for trade liberalizing negotiations. This gives US trade negotiators additional clout.  The real impact, as is well known, is that trade agreements, once negotiated, can be considered by Congress as a package, which cannot be amended and which must be approved or disapproved under a tight legislative schedule.  During August and September a group of members of Congress reactivated this issue, but the Executive preferred to postpone its treatment until after the November elections.   The result was a highly negative vote at the end of September.

As we well know GLOBALIZATION has aroused concern and outright hostility among some groups in the US.   Some LABOR sectors, and at least half of the American population, believes that  globalization does more harm than good:  that expanded trade will lead to lower wages for American workers, and to lower standards of respect for workers rights in partner countries.  ENVIRONMENTAL groups have concerns related with a “race to the bottom” in terms of environmental regulations, certain types of investment moving to low-regulation areas, use of environmentally objectionable production methods, and others.  At worst, these views explain why many polls show most Americans opposed to new free trade agreements.   At best,  Labor and Environmental groups, continue to insist that binding workers rights and environmental linkages be built into any fast track renewal measure.

In contrast to the situation in the US, in Latin America opposition to free trade and the FTAA is often led, not by environmental and labor sectors, but by some business sectors who fear international competition and perceive themseves as potential loosers.  For potential winners, and therefore potential supporters of the FTAA concept, the non existence of fast track poses a credibility problem:  it generates scepticism on whether these negotiations will be capable of improving access into the US market by reducing non tariff barriers, by disciplining the application of antidumping measures, and by eliminating restrictions to agricultural trade.  All this makes it difficult for Latin American governments to interest those segments of the private sector that are better positioned to benefit from the FTAA project.  The net effect of the lack of fast track in Latin America is to make opportunities very uncertain for those most likely to benefit, while the discussion seems to be dominated by the sectors that perceive themselves as loosers.

The net effect of the lack of Fast Track in the US is missing opportunities for US exports and investment as Latin American countries continue to actively negotiate Free Trade Agreements among themselves and with Europe.

2.      WTO Talks

A second factor that will influence the FTAA talks, is the advancement of negotiations in the World Trade Organization (WTO).  An  Agricultural Negotiating Round is set for 1999 and one regarding Services for the year 2000.  In addition, some countries wish to broaden the WTO agenda to hold what has been called a Millennium Round of global trade talks.  Next year Trade Ministers representing all WTO countries will gather in the United States where this decision might be taken.

The WTO agenda could be either a boon or a bust vis-a-vis the FTAA.  If the next WTO “round” develops at a slow pace then this could give an impetus to the FTAA.  If the “round” is fully engaged then progress in the WTO may substract from the incentive for liberalization at the regional level for two fundamental reasons: First, for purely pragmatic reasons:   many Latin American countries have limited financial and human resources for trade negotiations.  In fact, in very specialized areas, even the US and Canada have only a few qualified experts in their negotiating teams.  For these reasons, a fully engaged and intense WTO Round could substract negotiating resources for the FTAA.

But even if these pragmatic considerations were not an issue, the more substantive consideration is whether it makes sense for the countries of the hemisphere to proceed with the regional exercise of negotiating a FTAA, when multilateral negotiations are dealing with the same issues.  The conceptual and practical difficulties are inmense.  The FTAA is intended to be WTO-plus.  This is relatively easy to define when the floor of the negotiations, that is, the WTO commitments are well defined, but if you are renegotiating the floor in a multilateral round you have lost your benchmark.  Thus, it seems fair to say that if an intense and comprehensive process of negotiation is launched in the WTO, the regional FTAA negotiations will be a very tough and complex exercise in defining in which areas the FTAA will establish stronger disciplines and will provide deeper market access than the WTO, and in which areas the FTAA will not go beyond multilateral commitments.  Informed discussion about these issues is one of the more challenging analytical areas in the next few years.

The Global Financial Crisis

A third factor is the behaviour of the world economy.  The most important element on the horizon is the prospect that the world economy might be entering a period of slow growth and increased financial uncertainty and instability, of a greater duration and of more serious consequences than was thought only a few months ago.

If the deterioration of economic conditions in Asia, and in the Russian Federation, aggravate and exert a contagion effect on other regions of the world and on the American economy, the Western Hemisphere economic and trade priorities could be affected.  This includes the possibility that the FTAA negotiations would become less important in the national agendas of some of the most important actors.

Congressional approval of the US contribution to the IMF and the financial package in support of Brazil are steps in the right direction.   Brazil is the acid test of financial contagion in Latin America and the world s attention is focused on President Cardoso s capacity to deliver the necessary reforms to build up confidence.

In this respect, it is important to note that, as has been often repeated by observers of economic trends and policies in Latin America, the region has developed a large experience in economic management, an excellent capacity to respond to external shocks and has substantially improved its economic fundamentals.  Latin America has implemented economic reform policies, including financial reforms, privatization, trade liberalization and attractive investment policies, that make the region economically stronger than ever before.

The problem is that Asia seems nowhere near to have hit bottom, growth prospects in Asia are still being revised downward, and the markets confidence does not seem to be returning just yet.   Thus, despite its capacity to respond and highly improved economic fundamentals, the reality is that Latin America has been hit by the Asian situation.  Growth prospects are also being revised downward in Latin America. It is estimated that average GDP growth will be 3% in 1998 against the more than 5% growth record experienced in 1997.  In fact, the only really bright part of the world economy at the moment is the continuing positive prospects of the United States economy.

I would like to make two points in this area:

a)  First, the evident one that the health of the world trading system, economic prosperity and integration in the Western  Hemisphere, and the course of the FTAA talks, are closely linked to the success of global macroeconomic management and cooperation efforts during  1999 in avoiding a global depression.

b) Second, even though the US growth prospects are good, recessionary impacts might come not only from the Asian front but also from the Latin American front.  Latin America accounts for more than 20% of total US exports, and has been the most dynamic market for US exports in the last five to ten years.  Slower growth in Latin America is bad news not only for Latin America but for the US.  This is one additional reason why “fast track” in the short term, and the creation of the FTAA in the medium term, should be seen not only as a trade policy, but indeed as a growth policy,  and as such as part of the global economic management efforts.

4. Trade negotiations with other regions

Another important influence on the evolution of the FTAA talks is the trade policies of the European Union.  The EU has been actively seeking negotiations with several countries and subregions of the hemisphere.  For regions such as MERCOSUR, that have a high proportion of their trade with the EU, these negotiations are high priority.  If reciprocity and political will are present, these negotiations could become MERCOSUR’s first priority and important also for other regions or countries, to the detriment of the priority assigned to the FTAA.  As a practical matter if those negotiations are real and intense then the pressure and capacity to fully engage on the hemispheric side will not be present.  Engagement with the European Union has been, and could be even further stimulated by a protracted absence of “fast track” authority in the United States.

5.   Bilateral frictions

An additional key factor that might influence the pace of FTAA negotiations is the evolution of bilateral frictions and trade disputes, particularly between the United States and MERCOSUR or Brazil, such as those originated by the application of antidumping measures in specific products.  These have the potential of contaminating the talks by reducing the goodwill for the FTAA negotiations.

6.   Positioning by civil society

In marked contrast to the past, a new actor has emerged in trade negotiations: civil society.   The emergence of civil society as a player in the trade dialogue is creating a new paradigm regarding the political context for and conduct of trade negotiations, which is still largely undefined and manifests itself in many different ways in different countries.  The influence of civil society could be positive or negative depending precisely on the positions that many of these groups adopt, how constructive they are prepared to be, and the flexibility and understanding that governments and trade negotiators could develop to civil society concerns, particularly as regards labor and environmental issues. I already mentioned some aspects of the political economy of civil society positions in the trade area in the US and Latin America, and there are many sophisticated arguments and insights that could be made in this area.

As part of this overview let me just add that an innovative feature of the FTAA process is the creation by the San José Ministerial Meeting of a Comittee of Government Representatives on Civil Society in order to receive the input of civil society and convey the range of opinions to Ministers.  The Civil Society Committee met for the first time in October and agreed on the language and rules for an open invitation to civil society to send their observations in writing before the 31^st of March, 1999 for the consideration of this Committee.  As you might know, the establishment and role of this Committee has been surrounded by quite a lot of controversy.

IV. FORCES THAT EXERT POSITIVE INFLUENCE

Just as there are forces that could exert negative influence on the FTAA negotiations, there are others that could help and push the process to a successful conclusion.  Let me mention five of these forces.

1.  Subregional and bilateral negotiations

First of all, the FTAA process will be determined by developments in subregional and bilateral negotiations between countries or groups of countries in the hemisphere.  MERCOSUR, the Andean Group, Central America, Chile, the Caribbean, Mexico, Canada, among others, have been and continue to be extremely active deepening their subregional agreements or widening their bilateral commitments.  In fact, these bilateral and subregional agreements have been a key part of the policy reform and growth strategies of Latin American countries.

It is also in this area where we find the most tangible and impressive results in economic integration in the hemisphere, in terms of the intraregional growth in trade and investment flows.  In addition, in most cases these are new generation agreements, that modernize old style integration arrangements, and that include disciplines that had never before been part of the integration deal in Latin America, such as:  services, government procurement, intelectual property and modern dispute resolution mechanisms.

Thus, by creating a web of modern trade liberalizing agreements under codes consistent with the principles and rules of the WTO and of the FTAA, subregional deepening and widening is, in and by itself, one way of advancing hemispheric integration and of facilitating the convergence toward a Hemispheric Free Trade Area.

If this trend continues, as no doubt it will, in the year –say—2003 we will have a much  more integrated and interdependent hemisphere.   In addition, it is important to remember that the crop of agreements that have been signed in recent years involve gradual market access commitments which automatically become deeper every year.  These in built dynamics will facilitate the FTAA negotiations down the road.

This route, however, is also risky, and may even damage the FTAA project, if the bilateral and subregional treaties are not negotiated with rules and standards that are mutually consistent.  This is another dimension of the relationship between multilateral, regional and subregional negotiations that pose tremendous analytical and practical challenges in the coming years.

2. Mutual confidence among negotiators

A second facilitating factor is the mutual knowledge, trust, communication and good will among a critical mass of trade negotiators and persons responsible for trade policy in the hemisphere, from Ministers to technical experts.  The Preparatory stage involved more than 700 trade negotiators in the specific areas covered by the Working Groups, and an even more numerous group continues to meet regularly in the NGs.

The phenomenon has been particularly strong at the level of the Trade Negotiating Committee, integrated by the viceministers.  The process has generated a tremendous amount of familiarity, previously non existent, among participants, with a much better knowledge of the personalities of each and everyone, of the fundamental reasons and nuances that separate the official positions of each country and a better understanding of the national technical and political restrictions and sensitivities that each one faces.

All this has facilitated that the initial climate of mistrust and tension give way to an atmosphere of understanding and tolerance, and to goal oriented activities and meetings.  In fact the ideological positions and rhethoric of only a few years ago, have given way to a new consciousness and spirit that we are all participating in a common undertaking under instructions from the Presidents and the Ministers Responsible for Trade, and whose objective is to advance as much as political and economic conditions allow.

In this new stage of negotiations, it can be expected that this critical mass of trade negotiators and of mutual trust and knowledge, will expand, not only due to the higher frequency of meetings but also by the broad and intense process of consultations entailed by the negotiations, and by the formation of joint public-private sector committes and working groups such as in the case of Electronic Commerce.

3. Technical Assistance Programmes

Another facilitating element is the fact that the FTAA negotiating process is generating a large variety of activities of technical assistance, training, conferences, seminars and fora, many of them organized directly or with the participation of the Tripartite Committee and of members of the national negotiating teams.  These programs include from general familiarization fora to increase awareness about globalization, free trade, and trade negotiations, to specialized training programs that facilitate the implementation of the Uruguay Round commitments, and the implementation and harmonization of clear trade and investment rules.

Business Networking

Just as there has been a process of formation and strengthening of a true hemispheric community of trade negotiators, the FTAA process has also generated more confidence and mutual knowledge among the business communities of the hemisphere.  Business leaders organized in the multilayered system of chambers of commerce, industry and services, have been participating actively in the annual Americas Business Fora, and in innumerable business and academic activities to talk about integration, trade and national policy priorities.

The FTAA process has induced that more and more businessmen think and act globally and hemispherically, it has also increased support and provided a new rationale for economic reform.  Most important, it has strengthened the trend towards a new paradigm in the policy dialogue between the business communities and governments in Latin America, in which the business sectors have been changing from the old rent-seeking behaviour to a new perspective focused on how to eliminate economic distorsions, improve national competitive conditions, invest in education and improve infrastructure.

Business Facilitation

Finally, in the Summit of the Americas in Miami the Leaders committed themselves to achieve “concrete progress in the FTAA negotiations by the year 2000”.  Trade Ministers have been negotiating a package of business facilitation measures to be implemented by the year 2000 to comply with this commitment and to meet the expectations of the private sector of early results from the FTAA by the end of the century.   This is a key issue in the next Trade Ministerial Meeting to be held in Canada in October 1999, and indeed a major test of the success of the FTAA initiative.

V. COLLATERAL USES OF THE FTAA

Let me conclude by saying that the FTAA talks add value and are important as a process, even if concrete results are not scheduled to be produced until 2005.  They are important because, even at the negotiation stage they have positive collateral uses and spin off effects on economic policy, private sector behaviour, networking and expectations.  To be more specific, there are a number of positive spin off effects:

1.   First,  the FTAA talks help to give both a sense of direction, and a sense of urgency for economic policy reform.  The shared objectives in each negotiating area provide a strategic orientation for all countries and have a positive feedback effect on national policy priorities.  On the other hand, the FTAA is engaging Latin America in trade negotiations, and in corresponding national policy discussions, under modern principles and commitments, more fully than it has ever been in the past.

2.    Secondly, as I mentioned at the beggining, more than 900 trade officials from the 34 countries will be involved in a continuing process of dialogue throughout the year. For many countries this increased communication and trust among trade officials, plus the explicit technical assistance that is being established in support of the process, amounts to a major program for trade and regulatory regimes reform under common principles and standards.

3.    Thirdly, the FTAA talks are reinforcing the political will and motivation of countries to deepen and widen their regional agreements.  The four yearly Ministerial meetings held during the preparatory stage produced a harvest of collateral negotiations among countries and regions, which will without a doubt continue in the new negotiating stage.

4.    The FTAA process is producing greater transparency and mutual self awareness about barriers to trade and investment among the participating countries, including pressure to ensure timely implementation of WTO liberalization commitments.

5.    The enthusiastic engagement of important segments of the business communities of all countries through the Business Fora of the Americas and innumerable other activities generated by the FTAA, is improving business networking and helping to identify and exploit new investment and trade opportunities.

6.    Finally, the FTAA process has been increasingly capturing the interest of many sectors of civil society.  Which way this support will go is an open question.

Let me finish by reminding ourselves that the trade issue is but one initiative, although perhaps the core one, in what is becoming an increasingly solidified process of summitry that includes democracy, sustainable development, the fight agaist poverty, and 23 hemispheric cooperation initiatives.  It is the interdependence and simultaneous advance in this broader agenda what makes the Summit of the Americas vision so atractive as a framework for a common hemispheric enterprise for the 21^st century. 

Thank you for your attention.