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"reconstruction must not be at the expense of transformation" Technical Working Group
on Trade Technical Working Group on Trade Issues Paper
Technical Working Group on Trade Issues Paper
Introduction In the face of the destruction caused by Hurricane Mitch, the Central American governments urge the international community to consider that for the reconstruction and transformation of the region, it is fundamental to complement external assistance with better market access conditions for the region’s exports. After all, trade is the best stimulus for development. Therefore, the international community is asked to take this consideration into account in future trade negotiations with Central America in the appropriate negotiating fora. The second essential ingredient for promoting the development of the Central American region is investment, which is a crucial tool for increasing the region’s international competitiveness and thus ensuring a more effective participation in world trade. Finally, in order to achieve the objectives of increased trade and investment, institutions must be strengthened so that they can formulate and implement adequate public policies. This document outlines the external support required by Central America in three interrelated areas: i) greater access to donor countries’ markets; ii) support for attracting investments; and iii) contributions to institutional development with a view towards achieving greater effectiveness in trade and in attracting investment. These three elements together would contribute significantly to the economic reactivation of the region, and, as a result, to the solution of the problems of unemployment, poverty and migration. The Need to Improve Access to Donor Countries’ Markets Trade can play a fundamental role, especially in the medium term, in Central America’s economic recovery following the destruction caused by Hurricane Mitch. Since there is a clear positive relationship between trade and economic development, the region’s recovery can be accelerated through a greater volume of international trade. In fact, faster economic growth can contribute not only to the solution of the problems caused by Hurricane Mitch, but also to the completion of pending tasks for the region’s development. In the mid-1980s, Central America initiated a process of unilateral trade liberalization, including tariff reductions and the elimination of non-tariff barriers. At the multilateral level, moreover, all countries of the region joined the General Agreement on Tariffs and Trade (GATT) and participated in the Uruguay Round. Progress on trade liberalization was also made at the regional level, with the re-launching of the regional economic integration process following a new concept, "open regionalism". More recently, the countries of the region have negotiated free trade agreements, either bilaterally, in subgroups, or jointly. It should be emphasized that these trade-related changes are an integral part of a global process of economic reform. Indeed, the economies of the region are open and participate actively in international trade (the average openness coefficient for the region was 66 percent in 1997). Central America has undertaken the necessary economic reforms that allow it to benefit from favorable conditions of access to key markets. This reform process is in full progress today, and will become even deeper in the near future. One key characteristic of this process has been the extensive use of trade preferences that have been granted to the region by some donor countries. This is evidenced, among other developments, by the high and growing trade with the United States (US), which intensified after the approval of the Caribbean Basin Initiative (CBI) and which, in turn, has also meant an increase in the competitiveness of US companies located in the region. The volume of trade with the European Union (EU) has also increased, particularly with the concessions granted under the framework of the Generalized System of Preferences (GSP). In fact, among the sub-regions of Latin America and the Caribbean, Central America is the one which has made the most use of the preferences granted by the United States and the European Union (Central America’s average use of GSP preferences as a percentage of total exports to those markets is nearly double that recorded for Latin America and the Caribbean). Therefore, given the reforms already undertaken and those in progress, and the historic use of trade preferences, the reactivation of the Central American economies would benefit from an improvement in the conditions of access to donor countries’ markets. This would result in an increase in their exports and greater prospects for economic growth and employment in the region. Given that market access negotiations have their corresponding fora, the international community is urged, in those fora, to take into consideration the compelling conditions arising from Hurricane Mitch, and the positive impact that better access to developed country markets would have on the reactivation of Central America. In particular, the following is proposed: i) parity with Mexico as regards conditions of access to the US market in the textile and clothing sectors, and the incorporation of products currently excluded from the CBI, especially the elimination of tariffs applied to US imports of beef and sugar and the increase in the existing quotas for these products; ii) as regards EU preferences granted under the Generalized System of Preferences, it is requested that these be granted indefinitely, and that rules of origin be allowed to be cumulative with other subregions, especially with the Andean Community; iii) the prompt opening of the Canadian market through preferential regimes or mechanisms that envision an asymmetrical reciprocity; and iv) an improvement of the opportunities for Central American exports to Taiwan and Japan. Two large fora of crucial importance for Central America are the Free Trade Area of the Americas (FTAA) and the World Trade Organization (WTO). In these fora, the possibilities for better access conditions for Central American exports should be made concrete. In particular, a new round of WTO negotiations should contemplate topics and products of special interest for these countries (such as, for example, agricultural products). Support for Investments in Central America Investment constitutes the principal dynamic element of economic growth, of increased competitiveness, and of technological change. The need for investment in Central America transcends the region’s capacity for savings; thus, foreign savings are key for achieving the necessary levels of capital formation. Direct foreign investment can contribute greatly to the region’s growth by promoting technological change and the development of human resources, facilitating access to export markets, and improving infrastructure and services. The donor countries may contribute to the promotion of investment to Central America in a variety of ways. These might include support for: i) the organization of commercial fairs in order to promote investment and exports; ii) the establishment of permanent investment attraction an export promotion offices by the Central American countries; and iii) the formation of human resources qualified in the areas of technology, administration and public policy. As part of their economic reform and in order to address bottlenecks in critical sectors of infrastructure and services, the Central American countries are carrying out programs which include the concession of public works, the elimination of monopolies, and privatizations, as well as the modernization of legislation on foreign investment in order to provide greater legal security to investors. In particular, the Inter-American Development Bank (IDB) is requested to convene, as soon as possible, a meeting of the Steering Committee of the Regional Consultative Group to consider initiatives aimed at promoting foreign investments in the areas of public works concessions, the elimination of monopolies, and privatization. This meeting will be aimed primarily at the private sector. Institutional Support Trade liberalization and the need to attract foreign investments create new challenges for the public and private sectors: growing competitiveness requires governments to develop an adequate institutional framework for the efficient management of present and future challenges in the administration of trade policy. Agencies responsible for the negotiation and administration of trade agreements, as well as for attracting investment, need to be strengthened so that they can better fulfill their role in the context of the new development strategies, greater openness, and growing participation of the private sectors. In effect, all countries in the region have initiated processes of reform and strengthening of their respective institutions. However, donor support could fill significant gaps. The needs vary from country to country, although several common issues are present. Among these it is worth noting the following: i) the need to compile statistics and to be prepared to undertake future negotiations in the area of services; ii) the development of the countries’ capacity to implement the agreements reached in the WTO, as well as other trade agreements, and to carry out economic impact studies resulting from different negotiation scenarios, both for trade in goods and trade in services; and iii) training, especially in the form of long-term academic grant programs that address trade-related issues. Country-specific needs for institutional strengthening are detailed in an Annex that will be circulated at a later date. The Inter-American Development Bank (IDB) is requested to convene, as soon as possible, a meeting of the Regional Consultative Group to define the specific needs for institutional strengthening in the areas of trade and foreign investment promotion with a view to requesting support from the donor community.
Plan of Action This plan of action represents a consensus between the Central American governmental and the donor delegations which participated in the Technical Working Group on Trade. A Technical Working Group on Trade took place on May 25, 1999 hosted by Mr. Leif Pagrotsky, Minister of Trade from Sweden and moderated by Mr. Gert Rosenthal, Ambassador of Guatemala to the United Nations. The meeting included the presentation of an issues paper which reflected the views of the Central American Trade Ministries focusing on: i) market access for exports, ii) mechanisms to promote investment and trade, and iii) institutional strengthening of trade related agencies in the Central American countries. In addition, the heads of delegations of the countries in the Isthmus presented their particular country perspectives on the common issues paper to the invited donor delegations. This was followed by a dialogue among the delegates on all these issues. Finally, the working group agreed to prepare and approve, on a consensus basis, a plan of action with a description of the initiatives that should be undertaken after Stockholm. The plan of action and list of participants follow. Plan of Action In the face of the destruction caused by Hurricane Mitch, the Central American governments urge the international community to consider that for the reconstruction and transformation of the region, it is fundamental to complement external assistance with enhanced market access for the region's exports. After all, trade is the best stimulus for development. The second essential ingredient for promoting the development of the Central American region is investment, which is a crucial tool for increasing the region's international competitiveness and thus ensuring a more effective participation in world trade. Finally, in order to achieve the objectives of increased trade and investment, institutions must be strengthened so that they can formulate and implement adequate public policies. 1. Market Access Given that market access negotiations have their corresponding fora, the international community is urged, in those fora, to take into consideration the compelling conditions arising from Hurricane Mitch, and the positive impact that enhanced access to developed country markets would have on the recovery of Central America. In the medium term, Central America aspires to stable and reciprocal trade relations with its major partners, however, in the short term, there is the need for enhancement of the Caribbean Basin Initiative and other preferential arrangements. Two large fora of crucial importance for Central America are the Free Trade Area of the Americas (FTAA) -negotiations for which were launched in April 1998- and the World Trade Organization's (WTO) built-in negotiating agenda and its possible expansion to a millennium round. These fora will provide Central American countries with possibilities for enhanced access for their exports. In particular, a new round of WTO negotiations should contemplate topics and products of special interest for these countries (such as, for example, agricultural products). 2. Enhancement of Investment and Trade The international community may contribute to the enhancement of investment and trade in Central America in a variety of ways. These might include, inter alia, support for: i) the organization of commercial fairs in order to promote investment and exports; ii) the establishment of permanent investment attraction and export promotion offices by the Central American countries; and, iii) strengthening and expanding mechanisms that create business networks among firms in Central America and other countries. As part of their economic reform, and in order to address bottlenecks in critical sectors of infrastructure and services, the Central American countries are carrying out programs which include the concession of public works, the elimination of state monopolies, and privatization's. In addition, there is a need to continue efforts to modernize legislation on investment in order to strengthen the rule of law, enhance enforcement, and encourage transparency with a view to creating a more secure environment for investors. The Inter American Development Bank (IDB) is requested to convene, as soon as possible, a meeting of the Steering Committee of the Regional Consultative Group for Central America to consider initiatives aimed at promoting foreign investments in the areas of public works concessions, the elimination of monopolies, and privatization. 3. Institutional Strengthening Agencies and institutions responsible for the negotiation and administration of trade agreements, as well as for attracting investment, need to be strengthened so that they can better fulfill their role in the context of the new development strategies, greater openness, and growing participation of the private sectors. All countries in the region have initiated processes of reform and strengthening of their respective institutions. However, support of the international community could fill significant gaps. The needs vary from country to country, although several common issues are present. Among these it is worth noting the following: i) the need to compile and organize statistics and create effective information systems, particularly in the area of services; ii) enhance capacity to carry out economic impact studies of various trade arrangements; iii) strengthen the countries' ability to implement the agreements reached in the WTO, as well as other trade agreements; and iv) the formation of human resources qualified in the area of trade. In particular, there is an emerging need for training in the form of long-term scholarship programs in trade and investment areas. The Inter-American Development Bank (IDB) is requested to convene, as soon as possible, a meeting of the Steering Committee of the Regional Consultative Group for Central America to define the specific needs for institutional strengthening in the areas of trade and foreign investment promotion with a view to requesting support from the donor community.
List of Participants Mr. Leif Pagrotsky, Minister of Trade, Sweden (Host of the
Meeting) Other Participants Mr. Eduardo Lizano, President of the Central Bank, Costa Rica Rapporteurs Robert Devlin, Division Chief, Integration, Trade and
Hemispheric Issues Division, Integration and Regional Programs Department, IDB For more information on the workshop, contact |
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Nicaragua, May 2000 - Honduras, February 2000 - Stockholm, May 1999
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