Free Trade Area of the Americas - FTAA


Trade Negotiations

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February 17, 2004

Original: Spanish
Translation: FTAA Secretariat





Concern surrounding the need to address the issue of disparities and to turn trade into a tool for furthering development is not exclusive to the FTAA. Such concern can in fact be found in other realms, since the widespread economic opening processes have failed to automatically bring about the conditions needed to overcome the problems of backwardness, inequality, and poverty that beset so many countries around the world. At the multilateral level, both the United Nations System of Organizations and the World Trade Organization (WTO) have shown a growing interest in tackling the issue.

As far as the United Nations is concerned, the Heads of State and Government of the whole world jointly agreed, at the Millennium Summit held in 2000, to adopt a far-reaching plan to facilitate the pursuit of worldwide development goals. These goals (reducing extreme poverty, promoting gender equality, expanding education, reducing infant and maternal mortality, reversing the loss of environmental resources, and improving reproductive health) have thus become the cohesive force driving many of the activities and defining the targets of agencies such as the OECD, the IMF, the World Bank, etc. In line with this approach, the International Conference on Financing for Development, held in Monterrey, Mexico, in 2002, represented a significant step towards reversing the declining trend in official development aid, and thereby ensuring improvements in the international arena in which the efforts of the least advanced countries are being undertaken.

As far as the WTO is concerned, it should be borne in mind that the Marrakesh Agreement of 1994, whereby the organization is established, states that: "...the need for positive efforts to ensure that developing countries and the least developed countries secure a share in the growth in international trade commensurate with the needs of their economic development...” and, to a large extent, that the controversy about the implementation of commitments assumed in the Uruguay Round stems from the human limitations and insufficient resources developing countries face when trying to create the infrastructure needed for them to meet their new obligations and adapt their legislation accordingly, limitations which, according to the WTO itself, “must concern every Member, not just the countries subject to them” 1/In this respect, in another recent WTO document, it is suggested, as far as outstanding institutional tasks are concerned, that: “It is a core function of the Secretariat to assist developing countries to build the human and institutional capacity they need to participate more fully in the work of the system and derive maximum benefits from it… Of the WTO’s members…80% are developing countries. The development dimension therefore has to be, and is, a central element in the WTO’s activities.” 2/

At the Doha Ministerial Meeting, the WTO also highlighted the importance of helping developing countries in their integration processes, stating that: “The Doha Development Agenda recognizes that technical assistance and capacity-building are essential to assist developing countries to implement WTO rules and obligations, prepare for effective participation in the work of the WTO, and thus to benefit from the open rules-based multilateral trading system. Therefore, all Members of the WTO and the Secretariat have the shared responsibility to generate support for technical assistance and capacity-building in favor of developing and less-developed countries.”3 /

Concern about the differences in the sizes and levels of development of the economies has always been present in the negotiations for the Free Trade Area of the Americas (FTAA). Since the Santiago and Miami Summits, both the Declarations of Principles and Action Plans and the mandates handed down as a result of those documents, have stressed the importance of the FTAA process contributing to raising living standards, to improving the working conditions of all peoples in the Americas, and to better protecting the environment, all areas in which addressing the issue of disparities plays a key role. In this respect, in the Toronto Ministerial Declaration of 1999, the Ministers stated: "…We reiterate that in designing the FTAA we shall take into account differences in the levels of development and size of the economies in our Hemisphere, to create opportunities for the full participation of the smaller economies and to increase their level of development. We recognize the broad differences in the levels of development and size of the economies in our Hemisphere…”4 /


Since the start of the negotiations for the creation of the FTAA, and even during the preparatory stage for those negotiations, the need to address the disparities that characterize the group of countries participating in the process has been repeatedly emphasized in various agencies and at various levels of negotiation.

In this respect, in the Buenos Aires Ministerial Declaration of 2001, it was stated that: "We reaffirm our commitment, embodied in previous Ministerial declarations to take into account, in designing the FTAA, the differences in the levels of development and size of the economies of our Hemisphere to create opportunities for the full participation of the smaller economies and to increase their level of development. We recognize the broad differences in the levels of development and size of the economies in our Hemisphere and we will remain cognizant of those differences in our negotiations so as to ensure that they receive the treatment that they require to ensure the full participation of all members in the construction and benefits of the FTAA”5. The same Ministerial Declaration goes on to add: “We reiterate the importance of cooperation to enable the strengthening of the productive capacity and competitiveness of those economies.” 6.

Furthermore, the Declaration issued at the following Ministerial Meeting (Quito, November 2002) reasserts: “We consider that the establishment of the FTAA, through increased trade flows, trade liberalization and investment in the Hemisphere, shall contribute to growth, job creation, higher standards of living, greater opportunities, and poverty reduction in the Hemisphere. For this to be possible, the establishment of the FTAA shall promote the application of policies oriented to economic development, promoting the generation of employment and the effective operation of labor markets in the Hemisphere.” 7/

The existence of large disparities between the countries, and in many cases within them, poses one of the major challenges facing the FTAA and makes addressing these disparities one of priority issues in the debate surrounding the negotiations because if it is not addressed, the functioning of the FTAA itself could further increase the differences among the participating countries that currently characterize the situation during the negotiating stage of the Agreement.

Although the establishment of the Consultative Group on Smaller Economies (CGSE) in 1998 and the creation of the Hemispheric Cooperation Program (HCP) in 20028 are both initiatives undertaken to respond to the existence of profound inequalities in the FTAA, it is clear that they fall short of addressing the problem properly, starting with the fact that to date, special and differentiated treatment has still not been sufficiently extended to the economies which, without being “smaller”, are characterized by a low average level of development and/or by the existence of regions or sectors that require special support in order to be able to successfully handle the hemispheric free trade the FTAA will bring about.

In short, for many countries in Latin America and the Caribbean, given the level of backwardness and inequality that characterizes them, ensuring an adequate link between free trade and the promotion of production is absolutely essential. This link not only needs to be a top priority in the multilateral negotiation processes, but also, and especially, in the FTAA negotiations, due to the important role this area plays and will play in the international insertion of most of the region's countries for whom hemispheric trade accounts for high proportions of their total trade (see Table 1).

Table 1



MERCOSUR 51.6 43.7
CAN 75.0 64.1
CACM 77.7 77.6
CANADA 88.8 69.0
MEXICO 93.9 72.3
CHILE 44.1 58.7
PANAMA 73.2 66.4

SOURCE: ECLAC: Latin America and the Caribbean in the World Economy, 2001-2002

In light of the above considerations, it is essential that addressing the national, regional, and sectoral disparities in an increasingly intense manner be incorporated into the FTAA process by drawing up proposals and defining actions that go beyond what has been discussed so far, and it is in this context that the creation of the Production Development Fund (PDF) is being submitted for consideration.


The more specific aspects of the PDF should be analyzed and negotiated within the FTAA process and, in particular, as part of the creation and implementation of the Hemispheric Cooperation Program. This proposal does not therefore aim to provide details on the modalities for the operation of the PDF, but rather to outline the more general parameters that should guide the definition of the fund's operations by providing initial responses to some of the main questions that can be used to direct its implementation.

For this purpose, various international experiences of support for development and lessening disparities have been taken into account such as the: Structural Funds and the Cohesion Fund of the European Union9 /, the Nordic Development Fund10 /, the OPEC Solidarity and Cooperation Fund for Southern Countries 11/, el OPEC Fund for International Development and the Association of Caribbean States12 /; at the regional level, the Financial Fund for the Development of the River Plate Basin13 /, and the Special Fund of the Association of Caribbean States.” 14/

In our opinion, the following questions and answers could serve to outline the general parameters for the establishment and operation of the Fund:

• What is the rationale for creating the Fund and how will it fit into the general architecture and progress of the FTAA?

• Does it replace or complement the initial agreements and initiatives that already exist regarding Special and Differential Treatment (SDT)? Would it form part of the Hemispheric Cooperation Program (HCP)?

• Would the Consultative Group on Smaller Economies be responsible for discussing the establishment of the fund?
• Concern about the differences in the sizes and levels of development of the economies as well as the need to transform production from being a tool for international trade development into a tool for economic development.

• The Fund would be included among the existing initiatives in the Agreement and would complement existing SDT initiatives.

• The proposal for the Fund should initially be promoted in the framework of the HCP, within the CGSE. In the second stage of the discussions, the initiative for the Fund could be taken to the TCI.
• What problems and disparities is the operation of the Fund expected to address: Disparities among countries (channeling resources towards “smaller economies”, “developing countries” or “less developed countries”)?

• Disparities among productive sectors (channeling resources towards “troubled” sectors)? Disparities among regions within countries (channeling resources towards the backward regions)? Several or all of them?
 • The intraregional and/or sectoral disparities would be addressed by channeling financial and non-financial resources towards these regions or sectors.

• The basic unit of analysis should NOT be the country, but rather, zones or regions within countries, or among various countries, as well as specific production sectors.
• Where would the resources for creating the Fund come from? Only from donor governments in the hemisphere? Also from international agencies?

• From governments outside the hemisphere? From private organizations and/or ones outside the hemisphere?

• Would the Fund assume debt (taking out bank loans, issuing bonds)?

• How would the use of the Fund’s resources be defined, and what modalities would be used to channel the resources to the recipient countries?

• Regarding the use of resources: Are they to be allocated to the governments for the latter to distribute them internally? Are they to be allocated on the basis of the presentation and approval (at some hemispheric instance) of specific projects?

• Regarding the modalities: Only donations?

• Also preferential loans?
• The Fund’s resources would initially come from the private donors and the governments of the hemisphere.

• The workings of other funds or financial aid institutions should be studied to assess the feasibility of implementing financing modalities with proven effectiveness.

• As the Fund becomes established and consolidates its operations, it should expand its financial and non-financial aid options and instruments, as well as its sources of financing.

• Resources must be allocated as directly as possible to the final subjects or end users. The channeling of resources through government instances outside of the sector or region must be avoided.
• The idea of allocating funds per program/project is compatible with the criterion of direct allocation and could be applied in general. There are some highly particular regions or sectors whose needs cannot be served through programs/projects. In these cases, the financial aid should be coordinated through government authorities and private entities.
• As the Fund becomes established and consolidates its operations, it should expand its financial and non-financial aid options and instruments.
• Which would be the donor governments within the hemisphere?

• Would criteria be established for quantifying the expected amounts of their contributions?

• What would the donor governments’ level of commitment be regarding their contributions?
• Fair contribution criteria should be established so that ALL the governments of the countries of the hemisphere contribute resources to the Fund according to their capacity to do so.

• Clear criteria must be established to define the contribution capacity of each State.

• Contribution capacity could be directly linked to the value of each country’s total exports weighted by an added value exports indicator.

• The governments’ levels of commitment regarding their contributions to the Fund should be similar to those assumed with respect to all the FTAA institutions and commitments.
• Which will be the receiving countries, sectors and/or regions? • Any zone/region or productive sector of the FTAA that qualifies under the requirements established for the allocation of resources is eligible to benefit from the Fund.

• We propose two basic indicators, among others, for the selection of zones/regions or sectors:

• First, external vulnerability, measured through a weighting of three factors: export diversification, measured as the degree of participation of 5 main products in total exports; the degree of concentration in one geographical export destination; and finally, the degree of dependence on the export of primary products.

• Second, the kind of indicators that refer to the lack of opportunities, defined through the weighting of the per capita GDP, the Human Development Index, poverty indicators, and the size of the income gap expressed in terms of the GINI coefficient.
• Which elements or variables would be used as a basis for identifying and allocating the amounts to be received? • Priority criteria must be established for deciding which cases are eligible for aid. The following criteria are suggested:

• Capacity to generate positive production and/or commercial link-ups.

• Impact on job creation.
• How will the Fund be administered?

• To what extent will donors and recipients participate in the administration of the Fund?

• Will only governments be represented, or other sectors as well?
• The mechanism for administering the Fund must be determined by consensus among the FTAA countries.

• We believe that the experience of other organizational structures used by regional funds, such as the ones operated by the European Union, OPEC, the River Plate Basin, and the Association of Caribbean Basin States, among others, should be carefully studied. This study could serve as a basis for determining a transparent and dynamic operations structure.
• What criteria would be used to define the volume of resources the Fund would mobilize?

• Donors’ possibilities and commitments?

• Needs of the recipients?
• The initial capital of the Fund will have to be variable, as contributions may not be financial and the number of donors to the Fund may vary. Similarly, over time and depending on how the Fund develops, the dynamics of its operations may change as new needs are identified among recipients.
• In what way is the Fund being proposed as a complement (or as a substitute?) for existing regional (IDB) or multilateral (WB and IMF) agencies? • In our opinion, the Fund should be an autonomous entity, in addition to those already in the region.

Finally, it is important to note, beyond the specific modalities according to which the establishment of the PDF could be approved, that the creation of a Fund with the general objectives outlined in this proposal is essential if the FTAA is to effectively contribute to the development of production and competitiveness of the participating countries and thereby raise the living standards of most of the population in those countries.


1 WTO: The WTO, Capacity Building and Development… a Proposal, 2001.

2 WTO: Op. cit.

3 WTO: Doha Development Program

4 FTAA: Ministerial Declaration, paragraph 5, Fifth Trade Ministerial Meeting, Toronto, Canada, 4 November 1999.

5 FTAA: Ministerial Declaration, paragraph 5, Sixth Trade Ministerial Meeting, Buenos Aires, Argentina, 7 April 2001.

6 Idem, Paragraph 6

7 FTAA: Ministerial Declaration, paragraph 12, Seventh Trade Ministerial Meeting, Quito, Ecuador, 1 November 2002.

8 This Group was established at the Fourth Trade Ministerial Meeting held in San José, Costa Rica, 19 March 1998.  According to paragraph 13 of that Declaration, the Group’s functions are to: a) follow the FTAA process, keeping under review the concerns and interests of the smaller economies; b)bring to the attention of the TNC the issues of concern to the smaller economies and make recommendations to address these issues.

9 The preamble of the Treaty of Rome (1957) already mentions the need for the signatories to "strengthen the unity of their economies and ensure their harmonious development by reducing the differences existing between the various regions and the backwardness of the less favoured regions", and the following funds were later created: European Social Fund (ESF, 1958), the European Agricultural Guidance and Guarantee Fund (EAGGF, 1958), and the European Regional Development Fund (ERDF, 1975). Then, in the 1990’s, driven by the cohesion policies, the Structural Funds and the Cohesion Fund (for the environment and transport) were created, and at the end of the decade, the Financial Instrument for Fisheries Guidance (FIFG) was set up and a chapter on employment created. A total of 182.5 billion euros have been allocated to the Structural and the Cohesion Funds for the period 2000-2006.

10 This consists of Denmark, Finland, Iceland, Norway, and Sweden, and grants long-term loans (40 years with 10-year grace periods) and under preferential terms for less developed countries. The fund's capital consists of 515 million in Special Drawing Rights and EUR 330 million.

11 This consists of financial aid given under favorable conditions to the countries of the South that are not OPEC members, as an expression of solidarity and South-South cooperation. As of February 2003, the contributions made to the Fund by its member countries totaled USD 3.4394 billion.

12 The objective of this Fund is to support development programs and projects in the countries of the ACS in the sectors identified as priority sectors (trade, transport, sustainable tourism, and natural disaster prevention and relief.)

13/ According to the corresponding Articles of Agreement (Article 3), “The purpose of the Fund shall be to finance, under the terms of Article 1 of the Financial Fund for the Development of the River Plate Basin, studies, projects, programs and works to promote the harmonious development and integration of the River Plate Basin, using its own resources for this purpose and the resources it administers and obtains from other sources of financing.” To date, the fund’s capital is USD 200 million.

14 The objective of the fund is to finance actions that contribute towards promoting cooperation for development among ACS Members and to further the integration process in the region.

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