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FTAA.TNC/w/242
February 16, 2004

Original: Spanish
Translation: FTAA Secretariat

FTAA - TRADE NEGOTIATIONS COMMITTEE

VENEZUELA


THE TREATMENT OF SMALLER ECONOMIES AND THE DIFFERENT LEVELS OF DEVELOPMENT
 

A FREE TRADE AGREEMENT IS NOT CREATED BY TARIFF ELIMINATION ALONE

In the negotiations for the Free Trade Area of the Americas, the issue of the treatment of the abysmal differences in the size of economies and of the extraordinary differences in the levels of development has still not been satisfactorily resolved.

A project to create a free trade area that will truly be an opportunity for all the countries must set the necessary mechanisms into motion that will contribute specific and effective responses so as to reduce the immense initial inequalities.

Thus far, a clear and precise mandate on the specific measures that need to be taken to effectively contribute to a significant reduction in those profound disparities has not yet been issued.

The steps to which the most attention has been paid focus on strengthening countries’ technical capacity to take part in the FTAA negations, but no decisions have yet been made on the urgent steps needed to reduce and eliminate the profound inequalities among our countries.

If the actions needed to improve social and production conditions are not taken, highly unequal countries would be treated as equals and forced to compete under the same rules, despite underdevelopment and weaknesses of some of them. Equal treatment for unequal economies can only favor the largest at the expense of the weakest and least developed economies.

Only 14 months from the conclusion of the negotiations, there is an urgent need to move forward from technical assistance measures and the extension of deadlines for the fulfillment of FTAA commitments and disciplines to the creation of the mechanisms and funds required to correct the asymmetries and disparities among the countries now negotiating the Agreement.

A failure by the FTAA Agreement to address the asymmetries and disparities among the countries could have unforeseen consequences, particularly considering the fact that the "General Objectives and Principles” of the negotiations¹ state that the “the rights and obligations of the FTAA shall be shared by all the countries.” This implies the requirement of a reciprocity principle among highly unequal economies and economic agents.

Neither technical assistance to allow countries to adapt nor periods of a few years address these problems. The FTAA negotiations can and should achieve much more. Venezuela has said time and again that merely providing technical assistance for countries to be able to take part in the negotiations is not an adequate way of addressing the gap between the smallest and least developed economies and the large powers of the Hemisphere.

To move toward reducing these profound inequalities, we must face this challenge and assume firm commitments, which will necessarily entail a significant transfer of resources from the largest and most highly developed countries to the smallest and least developed economies.


HOW ARE THE STRUCTURAL CONVERGENCE FUNDS TO BE FUNDED?

The real possibility of the FTAA becoming an authentic opportunity for all is contingent not only on the liberalization of trade and investment, but also on:

i) Investment in improving conditions in countries’ production and social sectors;
ii) Strengthening of the countries’ technological and innovative capacities;
iii) Investment in human capital; and
iv) Changes in the prevailing conditions of competition in the Hemisphere’s main markets.

A free trade area will be an opportunity for all, if and only if the largest and most developed countries of the Hemisphere share the political, economic, and financial costs of opening spaces for production in the weakest countries. Solidarity is the key to ensuring that a free trade area becomes the opportunity for all that it is touted to be.

Hence, Structural Convergence Funds to correct the disparities in infrastructure and services, technological and innovative capacities, and human capital among the countries must be created in order to prevent a free trade area from becoming a space with some winners and many losers. Structural and technological convergence is essential to ensure that the FTAA becomes a win-win alliance.

A possible debate on the need for Structural Convergence Funds has been obviated by the various proposals made on the funds over the course of the FTAA negotiations.

Now more than ever, the all-encompassing nature of the Agreement, as well as the significance of economic relations in the Hemisphere and the free flows of capitals, prompts us to insist on the need for funds as a mechanism to address the asymmetries in the degrees of development and size of the economies in the Americas.

Given these unmet needs, Venezuela has availed itself of its right as a nation which, in accordance with its level of development and economic size, is classified as a small, underdeveloped, least developed, or developing economy—or in any other category devised through free thinking—in order to propose the creation of Structural Convergence Funds (SCF) in various FTAA negotiating forums.

Such SCFs would have two important characteristics:

1. Any classification of countries must take into account economic, social, and financial variables that allow for an approximate description of each country's reality. Venezuela proposes the following order:

a. export diversification, gauged as the five largest export products’ share of all exports
b. degree of concentration in exports’ geographic destination,
c. degree of dependence on primary-product exports,
d. level of industrial development
e. poverty, real per-capita gross domestic product, Human Development Index (excluding per-capita GDP), percentage of impoverished persons within the population, and levels of income inequality expressed through the GINI index,
f. any other criterion needed to broaden the necessary perspectives,

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¹ Fourth Ministerial Trade Meeting, op. cit., Annex 1.