ALCA - FTAA - ZLEA - TNC - Venezuela

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FTAA.sme/w/81/Rev.1
February 18, 2004

Original: Spanish
Translation: FTAA Secretariat

FTAA – CONSULTATIVE GROUP ON SMALLER ECONOMIES

VENEZUELA

PROPOSAL

During the Puebla TNC, held from 8 to 11 April, Venezuela presented a document emphasizing the need to discuss the feasibility and advisability of including the issue of compensation funds in the FTAA negotiations, as a means of significantly reducing, in one way or another, asymmetries in levels of development between countries and between the production sectors involved. This mechanism must have specific social and economic objectives, well-defined deadlines, and monitoring mechanisms. This proposal—which is currently focused on the establishment of a production development fund—is well underway and constitutes an essential prerequisite for reducing the asymmetries among the participating economies, by introducing competitiveness in a free trade area.

This mechanism must be initially established in such a way that allows for existing asymmetries in the region to be measured and may be discussed in the Consultative Group on Smaller Economies (CGSE). No consensus has been reached in the CGSE that would help to begin discussions on the asymmetries in the levels of development of the countries. Venezuela therefore proposes initiating the discussion based on the reasoning that establishing a concrete definition of “smaller economy” will facilitate the formulation of one or more strategies to overcome the obstacles created by existing asymmetries. A group of economic and social variables have been defined that seek to identify, in a non-discretionary manner, those economies that require assistance in order to compete under favorable conditions within the free trade area.

Venezuela believes that, given the comprehensive nature of the contents of the FTAA Agreement, insofar as trade agreements and national legislation are concerned, as well as the key role that hemispheric economic relations play in most of the economies involved, in terms of trade and capital flows, consideration must be given to indicators that facilitate the presentation of asymmetries mentioned.

In this way, the treatment accorded in the FTAA to differences in the levels of development and sizes of the participating economies, in addition to being a high-priority issue for the reasons mentioned above, should include:

The creation of instruments within the FTAA, through which “developing” countries not only have access to the Area, but also are able to improve their production and competitive conditions, thereby reducing the disparities that characterize their domestic economies and the large gap that separates them from the larger, developed economies in the Hemisphere.

A clear definition regarding the economies that will receive special and differential treatment. Although the FTAA negotiations to date have repeatedly referred to differences in “the levels of development and the size”, the term used to identify the beneficiaries of this treatment is “smaller economies”, which refers to the economic size of the participating countries, without defining the criteria that will be used for this purpose. Strictly speaking, this size—and the access, or lack thereof, to special and differential treatment—would be determined by factors such as population, surface area, global production, and resource base, but it must also include other indicators that more accurately reflect the level of development and the structural limitations of the economies: composition of exports and external vulnerability; level of industrial development, average per capita income and variations thereof; poverty and abject poverty, etc.
In this sense, a country’s access to special and differential treatment may be determined based on the rating that it obtains for two types of indicators: First, external vulnerability, measured through a weighting of three factors: export diversification, measured as the share of five main products in total exports; the degree of concentration of exports in their geographic destination; and the degree of dependence on exports of raw materials. The second group of indicators reflect a lack of opportunity, measured by a weighting of per capita GDP, the Human Development Index, poverty indicators, and unequal income distribution expressed as a GINI coefficient.

An identification of special and differential treatment for not only each economy in its entirety, but also sectors therewithin, in such a way as to ensure that this treatment is accorded to the neediest regions and sectors. In this way, the resources allocated to reduce the disparities would be linked directly to the pertinent intra-national areas, thereby ensuring increased efficiency and transparency, as well as a reduction in the red tape that is usually associated with the use of resources that derive from the aforementioned mechanisms.


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