Ladies and gentlemen and distinguished guests: It is a great pleasure to return to Baylor University and join you at this conference to discuss the potential and prospects of free trade for the Americas.
Twenty-seven years ago, a few months before I began my law studies at Baylor, I was fortunate to accompany President Lyndon B. Johnson to the first summit of the Presidents of the Americas at Punta del Este, Uruguay, as a young military aide. The primary goal of that first summit was to support the beginning of trade liberalization among the Latin American countries. Next month the second summit of the Americas will be held in Miami, with the primary goals of expanding free trade, strengthening democracy, and advancing economic and social development throughout the Western Hemisphere.
In the 27 years between these two historic events, our hemispheric neighborhood and the world have changed dramatically, and the small seed planted at Punta del Este is in the process of blossoming into a hemispheric free trade area, and, I predict, into a future Common Market of the Americas. The North American Free Trade Agreement (`NAFTA') has set the stage for achieving free trade throughout the Americas and strengthening the economic and political relations between the United States, Canada, Latin America and the Caribbean. I have had the good fortune to witness at close range and participate intensely in this process during the past quarter of a century. For this reason, I am especially pleased to join you at this event.
As we meet tonight, preparations for the Miami summit are reaching the
critical point for decision. The United States, Canadian, and Latin Governments
realize that this summit is not only a historic event, but a watershed event
that could give impetus and momentum to the expansion of free trade throughout
the hemisphere. The agenda for the summit is being finalized, the critical
issues are being defined and the position papers are being developed. This,
therefore, is a timely conference to analyze the issues from a U.S., Canadian
and Latin perspective, to examine the
pros and cons of expanding free trade throughout the Western Hemisphere, and to suggest some ways and means to achieve this goal.
The principal question before the Summit Conference is how to achieve the goal of free trade throughout the Americas and how to build on the trade liberalization efforts of the past quarter century in Latin America. Related issues include the following: Should NAFTA be the foundation for this effort? If so, how can Central and South America and the Caribbean accede to NAFTA and what could be the standards or conditions for accession? Would it be feasible or desirable for groups of countries to jointly negotiate for accession with the NAFTA member countries. Or, should countries seek membership on an individual basis? How can democracy be strengthened and the environment protected in the hemisphere? What regulatory and dispute settlement mechanisms should be put in place. There is also the question of how to integrate countries of greatly varying economic development, size and competitiveness in a common free trade area.
These are questions which are being addressed by this Conference, and which will be the focus of the Summit Conference in Miami next month.
While there seems to be a general consensus of opinion throughout the hemisphere on the goal of free trade, there is no clear consensus on how to achieve it. Moreover, the role of the United States will be pivotal and the U.S. Congress is clearly divided on whether to grant the President the indispensable `fast track' negotiating authority to commence free trade negotiations.
Although most summit participants are assuming that a Western Hemisphere Free Trade Area (`WHFTA') is a goal to be achieved and not one to be debated, we in the U.S. appear somewhat reticent and Congress is very divided on the issue.
It behooves us then to answer the question why should the United States, in partnership with Canada and Latin America, pursue this ambitious goal of creating a Western Hemisphere Free Trade Area within the next decade. The experience in achieving the NAFTA teaches us to never take for granted that a good idea will automatically be approved by Congress or that people beyond the Capital Beltway are properly informed about the issue.
So, first let us examine both the potential benefit of a hemisphere-wide free trade area to the United States and why a trade partnership with Latin America is feasible at this time.
It is important to understand that Latin America is undergoing a dramatic
transformation in its economic policies. The positive results of that change
have moved the International Monetary Fund to predict that the region will
experience a higher rate of economic growth than any other region of the World
over the next decade--approximately six percent per year. These changes have
included privatizing their economies and opening their markets to foreign trade
and investment and have been ongoing for several years.
Latin leaders are eager to finish the job and maximize economic benefits through the creation of a Western Hemisphere Free Trade Area. They see significant economic and social progress being achieved through increased trade and investment among the nations of this hemisphere and are eager to increase their economic competitiveness and efficiency through free trade.
Moreover, Latin American countries have made great gains in expanding democracy over this same period. Latin leaders perceive that increased economic growth and opportunity for their people is the best catalyst for social progress and the best way to strengthen democracy in the region.
In view of these dramatic reforms and progress, I believe that the United States and Latin America would benefit substantially from a WHFTA.
A recent report issued by Institute for International Economics concluded that U.S. exports to Latin America would increase by $36 billion by year 2000 or 51 percent over current efforts because of such an arrangement. It also estimated that Latin American exports to the U.S. would increase by $87 billion by 2000 as a result of the WHFTA. As a result, the U.S. trade balance would improve with a gain of 60,000 net U.S. jobs being created by that date. The report also indicated that direct foreign investment in Latin American would increase by $60 billion by the year 2000.
The Western Hemisphere is expected to account for close to $200 billion in U.S. exports--considerably more than the United States sells to all of Europe plus Russia and more than it exports to eastern and southern Asia combined. Already, 37 percent of U.S. exports go to Western Hemisphere nations. To put it in perspective, let me point out that we sell as much to Brazil as to China; more to Venezuela than to Russia, and more to Ecuador than Hungary and Poland combined. Our exports to Latin America are growing at three times the global rate. If current trends continue, exports to Latin America will exceed those to the European Union as a whole.
One reason that our trade with Latin America is on the rise is that, between 1989 and 1992, the average effective tariff of Latin American and Caribbean countries was cut from 20 percent to 13 percent. This was done on a unilateral basis.
By next year, the Andean Pact countries--are expected to set a common external tariff no greater than 20 percent. As a result, they will become one of our twelve largest markets, accounting for $10 billion in U.S. exports. The U.S. sells more to the pact's 95 million people than to China's 1.2 billion.
MERCOSUR, the common market established by Brazil, Argentina, Paraguay and Uruguay, have agreed to eliminate all non-tariff barriers affection regional trade. When completed, MERCOSUR could represent about half of the South American gross product. The United States exported over $10 billion to those countries in 1993, an 11 percent increase over 1992.
Today, the United States accounts for approximately 60 percent of the goods imported by Latin America and the Caribbean, a region with a growing population of 460 million. Total trade between the
Nevertheless, I still believe that a Western Hemisphere Free Trade Area is an idea whose time has come and am confident that it will prevail. Assuming that fast-track is passed next year, the next question will be how to achieve the goal of a WHFTA.
Basically there are two strategies that are circulating at this time. One would expand NAFTA through the accession of individual countries or group of countries, in accordance with certain procedures and standards to be determined by the NAFTA member countries. The other strategy would deepen and enlarge the existing subregional free trade groups in the hemisphere such as NAFTA, MERCOSUR, the Andean Pact, the Central American Common market, and the Caribbean Community, and attempt to harmonize trade standards towards achieving a common free trade area. Of these two strategies, I think the first one is more feasible and simpler to pursue, although the two approaches are not necessarily exclusive.
NAFTA represents the most advanced free trade agreement in existence at this time. It would be much more expeditious to have it serve as the basis for achieving a WHFTA.
NAFTA is a multilateral accord that includes the principal economic partner and foreign investor for a large number of Latin and Caribbean countries. The Agreement's common set of rules already regulates three quarters of intra-hemispheric exports. Moreover, it is consistent with GATT, and its accession clause is an expression of open regionalism.
Nevertheless, to achieve a hemispheric free trade area through the expansion of NAFTA membership, the procedures for accession and the standards for application to the agreement still need to be defined. In view of the varying levels of development in the region, an inclusive hemispheric process would probably require flexible transitional arrangements and less uncertainty in areas that are sensitive to developing countries, such as labor and environmental standards. Expansion of NAFTA through accession would also require committed leadership, especially from the United States--and I have already mentioned the concerns about the division of American public and official opinion.
The second strategy of converging and widening the existing subregional
agreements can strengthen and complement the overall process to achieve a WHFTA
through a firm commitment to shared principles and participation in a common
negotiating framework. This strategy would multilateralize free trade benefits
among the existing subregional accords within a mutually agreed-upon period of
time, while at the same time generating a hemispheric consensus on common
minimum standards for sensitive trade-related issues such as investment,
intellectual property, labor and the environment. This process could be
facilitated by placing it in a hemispheric forum such as the Organization of
American States Special Committee on Trade. While this strategy, like the
expansion of NAFTA through accession has its own set of complexities, it does
have the advantages of building on the progress achieved over the last quarter
of a century in
subregional integration and advancing the hemispheric trade process on the basis of inclusion and consensus.
In my judgment, a hybrid combination of these two strategies may produce the optimum results from creating a WHFTA within the next decade. Accession to NAFTA by individual countries or groups of countries would be the most efficient way to accomplish this goal. Those countries like Chile, Argentina, Trinidad, Colombia and Venezuela that are prepared to meet the standards to accede to NAFTA on an individual basis with some modest adjustments to their trade and economic policies would do so in the first phase of the process. Those countries that are less developed could prepare for eventual accession to NAFTA as individual countries or members of subregional groups which would harmonize their trade and trade-related standards within their subregional group before joining NAFTA. Thus free trade negotiations could be accomplished according to a predetermined schedule and set of properties, taking into account the needs of each country or group of countries.
This hybrid strategy would build on the trade liberalization achieved through subregional groups. It would respect the reality that some countries are less prepared to begin immediate negotiations to accede to NAFTA but that all countries wish to have an opportunity to be part of a hemisphere-wide free trade area. It would also have the potential to expedite the process by allowing groups of countries with commonalities in levels of development and trade policies to prepare together for access to NAFTA as a group.
This hybrid strategy should establish and respect these following fundamental principles:
First, it should commit to the GATT principles for the formation of regional trading arrangements. These include not raising protections above levels prevailing prior to the formation of a Free Trade Area or Customs Union; eliminating trade barriers within a trading zone across substantially all sectors within an agreement rather than having sectoral or topic-by-topic coverage; and assuring that trade agreements have a precise interim plan and schedule for the staged introduction of benefits and disciplines.
Secondly, it should provide for equal treatment for existing and new members to the regional trade arrangement, although allowing flexible transition periods among the parties.
Thirdly, there should be established explicit rules of entry, including clearly-defined procedures and technical conditions for application and negotiation of accession.
Fourthly, it is fundamentally important that this hybrid strategy adhere to basic standards of transparency regarding key trading rules, such as rules of origin, investment rules, and staged phase-in periods for different member countries in accordance with their level of development.
Fifthly, it should establish an efficient and effective dispute settlement mechanism for resolving trade and investment disputes.
Finally, the strategy should maintain openness to membership for countries within and beyond the regions.
The North American Free Trade Agreement already meets all but one of these conditions--the procedure and standard for accession. It is also the first international free trade agreement in the world that includes both developed and developing countries. Therefore, I believe that NAFTA should be the foundation and starting point for expanding free trade throughout the Americas.
The first public step in creating a WHFTA was taken in January of this year, when NAFTA went into effect. The second crucial step is the upcoming Summit of the American Presidents. Decisions that are taken, or not taken, there will greatly influence the direction, process and efficiency of the effort to achieve the common goal of expanding free trade throughout the Americas, enhancing social and economic progress, and strengthening democracy.
It is imperative, in my opinion, that the focus and goal of the summit conference should be the expansion of free trade through the creation of a Western Hemisphere Free Trade Area. I believe that by concentrating on this goal, other equally important goals can be achieved. Economic progress and democracy will be strengthened if free trade throughout the hemisphere can be achieved. Certainly, the NAFTA experience has proven this to be the case. On the other hand, overloading the summit agenda with too many issues will only assure that no meaningful agreement may be reached on any objective.
Secondly, a decision on the strategy, including a mechanism and time schedule for achieving the goal of establishing a WHFTA, must be made by the summit conferees. Without a strategy, the effort to achieve this great goal may be stalled or frustrated. The summit leaders must grasp this once-in-a-century opportunity now and move expeditiously to realize it.
Thirdly, a decisive first step such as beginning negotiations with Chile for accession to NAFTA should begin by early 1995, otherwise the momentum needed to move the process may well founder. Successive steps should follow in a defined scheduled for achieving a WHFTA by a certain date.
It will require courage and vision from the leaders assembled at the summit to make these decisions in order to build a genuine economic and political partnership in the Americas. I believe that free trade can lead to the achievement of many common goals in this hemisphere, and that it can be the foundation for building a more democratic and more just and prosperous society throughout the Americas. Above all, our leaders and we need to take advantage of this propitious time.
As Shakespeare reminds us:
There is a tide in the affairs of men,
That taken at the flood,
Leads on to fortune;
Omitted, all the voyage of their life,
Is bound in shallows and in miseries.