1. The Tendencies of Today’s International Trade

Because of its general tendencies international trade presents a complex scenario for the insertion of economies with structural weaknesses in their production apparatus, distribution mechanisms and institutionality such as the vast majority of Latin American and Caribbean countries. Due to increasing competition, ever more complex multilateral rules and the high concentration of trade flows a great number of underdeveloped countries face the risk of being left at the outskirts of international trade. Also, a greater external opening may not necessarily produce more wealth.

Thus, it is not surprising that in spite of all the efforts the region carried out during the last twenty years –our is the one region in the world that has carried out the deepest economic reforms, particularly as regards trade– during the nineties it reached an annual growth rate of only 3,2%, significantly lower than the level obtained during the three decades of state-led industrialization, between the fifties and seventies (5,5% per year).2

2. Developing Countries’ Trade Policies and International Insertion

Current economic thought and debates argue that the benefits of globalization can be obtained through the implementation of radical external liberalization policies, together with a “slimmer” state apparatus and policies aimed at obtaining “optimal economic conditions” through liberalized markets and efficient private agents. However, as all relevant international experiences demonstrate, the role of the state in the creation of conditions to reach competitiveness, which obviously cannot be attained without meeting social and environmental goals, must be strengthened.

Some positions argue that there are two equally wrong policy alternatives within the current globalized scenario. On the one hand, isolation or lack of contact, which imply renouncing a priori the potential benefits to be derived from the efficiency and creative innovation stemming from the development of the global market’s production forces. On the other, the simplistic position that a mere passive insertion into the global economy, renouncing all relevant public policies, is enough to bring growth.3

The positive factors attributed to an active participation in the global market were examined. These are: vast gains as far as efficiency is concerned, translating into better production means that allow for greater income and well being; access to modern technology’s productive processes; the advantages derived from economies of scale and specialization, etc. Similarly, innovation, creativity, etc. were considered important “dynamic trade liberalization effects”, as opposed to the sluggish effects protectionist measures have on production.4

Some empirical studies were also cited showing a correlation between insertion into the global economy and better per capita income levels. They also point to the important role played by trade liberalization and insertion into the global economy as a way of promoting developing countries’ convergence with industrialized countries’ levels. However, it was agreed that recent developments in growth theories –referring to “endogenous growth”– lead to ambiguous conclusions regarding the link between trade liberalization and economic growth.

Within this context, it was pointed out that some studies carried out by international organizations5 indicate that only some countries have adapted successfully to changes and have benefited from globalization thanks, in part, to exports based growth strategies and foreign direct investment flows. However, the same sources point out that many developing countries have not succeeded in increasing their per capita GDP during the last thirty years. Even though this situation is due, partly, to internal factors, it is apparent that the international scenario has not been favorable to those countries’ development efforts.

Thus the consensus on developing countries’ need to develop and apply “adequate”, “coherent” and “flexible” trade and competition policies in order to face the challenges of globalization.

Within this context, recent positions that argue that in order to reap the positive effects of opening up to globalization it is necessary to adopt coherent “companion” policies that stimulate productive investment and generate appropriate levels of internal savings, macroeconomic stability, the development and consolidation of an institutional network for conflict resolutions, an adequate level of economic incentives and social cohesion and equity, which constitutes the foundation of the political and economic model, were underlined.

Consideration was also given to the link between free trade and environmental sustainability, calling attention to the fact that trade policies may have direct and indirect effects on equity and to the economic and trade effects that may derive from a deterioration of the environment.

3. Multilateral Trade Norms and Developing Countries

Some speakers analyzed current WTO multilateral trade norms and the issues on the international trade agenda, among them free trade, intellectual property rights, investment protection and financial and capital account liberalization.

The opinions put forth indicate that the WTO is the first example of the “global government” that will take shape during this century. Thus the advantages or disadvantages of the “needed” international institutional framework to regulate globalization were examined from different analytical points of view. Some argued that the mostly undesired effects of globalization result from the current absence of a full-fledged international institutional framework. However, others pointed out that the insurmountable obstacles some countries face to gain insertion into the global economy are precisely due to such institutional framework designed and imposed by the centers of power.

From the perspective of world economic history, it was explained that the problems developing countries face are not so much the current institutional framework as their inability to formulate a position regarding what is the institutional structure of globalization that best represents their interests.6

It was pointed out that ever since the Uruguay Round and within the framework of globalization, the belief has prevailed that the world is indeed moving towards an economic system that will create very positive trade opportunities. The considerable tariff reductions obtained in trade negotiations since the creation of the GATT, the gradual dismantling of administered agricultural trade and more transparent international norms in other areas recently added to the trade policy agenda were seen as the foundations of such future trade opportunities. In fact, average tariffs fell from approximately 40% at the end of World War Two to less than 5% in 1984, when the total application of the agreements reached at the Tokyo Round was completed.

Some speakers indicated that rather than produce immediate tangible benefits the WTO has improved the climate of international economic relations by establishing a solid legal foundation for the multilateral trade system. In fact, it has curtailed countries’ freedom to apply unilateral measures and approaches, as they convened to adapt their legislations, rules and administrative procedures to WTO rules. It was also pointed out that a trade system devoid of rules and institutions could unleash much stronger protectionist tendencies and international trade conflicts than those occurring today.

Nevertheless, it was agreed that ever since the III WTO Ministerial Conference in Seattle (USA), the need has arisen to critically examine that institution, particularly the strongly neo-liberal character of its regulations - which could become a “third conditionality”- the role it plays in the strengthening of transnational corporations’ rights and the limitations its liberalization proposals pose on governments’ capacity for action.7

Within this context, reference was made to the establishment of general rules that do not take into account the asymmetries between countries, thus perpetuating them, and to the fact that the reciprocity and conditionality of WTO rules are pernicious for most developing countries.

It was interesting to note that there is a perception that the WTO and its agreements are central elements that establish the conditions necessary to insure minimum levels of confidence among investors.8

It was agreed, even by its critics, that in the long run the WTO will acquire increasing importance and power as it expands its scope to include the new issues to be discussed in future negotiations. This will imply greater levels of harmonization of trade (and economic) policies and thus greater challenges on the road to development. This probable future scenario will depend on that organization’s effectiveness in: (a) sharply reducing the proliferation of unilateral international trade measures; (b) incorporating developing countries’ still unmet demands and (c) granting credibility to its dispute settlement system.9

It was acknowledged that the WTO’s Agreement on Agriculture and the General Agreement on Trade in Services are of special relevance to developing countries, and particularly Latin American and Caribbean ones, in light of the real possibilities these new rules open up for them and for the definition of international insertion strategies under current conditions.

4. Insertion Strategies and Trade Liberalization Policies

Developing countries’ international trade insertion strategies were the object of an interesting debate. Their potential benefits, risks and structural, institutional and policy “prerequisites” to maximize advantages were examined.

Regarding trade liberalization policies it was warned that many external variables affect all the world economies since their room for maneuver and possibilities to face successfully the external adverse conditions are strongly linked to each country’s development level.

Within this context, the across the board criteria for efficiency and competitiveness that underline the global trading system and the generalized adoption of incomplete, “orthodox” and unrealistic open trade and external liberalization policies are the main culprits for the recent wider gap between poor and industrialized nations.

Generally, participants at the seminar agreed that the design of trade policies is a complex process that must be part of each country’s development strategies and that it not very realistic to assume that globalization’s potential advantages will derive only from a more flexible definition of foreign trade policies. On the other hand, such policy must be coherently linked to macroeconomic stability, active productive development strategies, an adequate and growing institutional development and comprehensive social policies that may grant legitimacy to the development model.

III. Monetary and Financial Issues

1. Trends in Monetary and Financial Affairs

The present international monetary and financial system preserves the same fundamental traits that were prevalent during the crisis years of the nineties. Among these, mention was made to the following; i) persistence of high interest rates and exchange rate volatility; ii) unpredictable financial markets; iii) inability of the international financial institutions to avert new crises; iv) lack of effective mechanisms to control extremely high capital mobility; v) debt service pressures; vi) difficulties at the national economic policy level to effectively cope with external vulnerabilities and achieve social and economic development goals.

2. International Capital Mobility Implications

When considering the implications of international capital mobility, the size and, in particular, the speed of capital movements showed that central banks are becoming hardly able to counter speculation in currency markets. They equally showed that the volume of reserves held by the major countries is at a ridiculously low level when compared to the level of liquidity present in the global market.

In order to insure appropriate profit margins, increased requirements are placed upon developing countries for capital inflows, such as economic liberalization, monetary stability, fiscal discipline, high interest rates and accelerated privatizations. Developing countries forcibly operate under conditions set by international financial capital.

Capital inflows have rendered more complex the problems faced by recipient countries. In as far as stock markets tend to be the focus of capital inflows, investment flows to the productive sector are hindered. Such capital inflows foster currency appreciation and lower competitiveness by domestic production. Economic liberalization as well as fiscal discipline, exchange rate appreciation and high interest rate policies negatively affect a country’s process of accumulation and foster external indebtedness.

The need for developing countries to counter the general trend towards contractionary economic policies centered on monetary stability was widely shared. Such policies were perceived as shifting the emphasis away from production needs. Both situations tended to aggravate structural problems and to generate crises, as evidenced by the short-term nature of reductions in the rate of inflation.

The need to overcome reliance on capital inflows as well as capital inflow biased policies, such as contractionary and currency appreciation policies, was considered by some participants as a pre-condition for policies centered on national priorities. To such ends, trade and financial liberalization were considered to be in need of revision. A re-assement of how countries insert themselves into globalization would be needed in order to recover the ability to establish and manage monetary and fiscal policies on the basis of productivity and economic growth goals.10

3. The Impact of ‘Currency-Runs’

Financial information flows were considered a critical issue as regards how to counter the negative impact of speculative runs in the financial markets. It was deemed that from an economic perspective information should be considered as a public good since asymmetries in the flow of information bring about resource allocation inefficiencies and moral risks. State intervention, in contrast to regulation, was suggested. State intervention would insure a fair and efficient distribution of information resources acting on the basis of a prior selection of market relevant news and a definition of broadcasting modalities.11

The need to adopt mechanisms to counterbalance short-term financial flows volatility and to foster productive investments with a higher impact on welfare was considered. A Tobin Tax was considered as one of such mechanisms, suggesting the need to invest resulting resources in poverty reduction projects and in humanitarian needs.12

By way of example, recently published figures by the IMF indicate that daily world currency exchange transactions amount to US$ 1.9 billion. If so, a tax of only 0.01% would allow for estimated revenues of US$ 190 million. This figure is far from negligible in order to face some of the most pressing needs confronted by developing countries.

Nevertheless, the conclusion was reached that for developing countries the underside of financial globalization does not derive only from the fact that their capital markets lack depth and diversity of financial options or from the fact that exchange rates have ceased to act as a nominal anchor of their economies. Other factors such as structural disequilibria, i.e. degree the economy is open, production factor mobility and prices, labor market flexibility, export composition and export price trends in international markets, modalities of participation in the international economy, low technological levels and inadequate economic policy management, also have an impact.

4. Currency Agreements and Dollarization in Latin America and the Caribbean

Several speakers addressed the limitations exchange rate policies face in a global economy. As a policy tool, exchange rates not only allow for monetary and fiscal policy flexibility but can also be a strategic tool to achieve economic equilibrium. Further debate on currency agreements has followed, each country in search of a currency of the highest possible quality. An important number of speakers was of the view that trends point towards a significant reduction in the number of currencies in the future world economy, or at least to a limited number of independent monetary policies.

From another perspective, it would seem that no single country could hope to be able to establish independent currency arrangements that might offer stability vis-à-vis other currencies. For some participants the most viable option would be to contain the degree of instability by links with a stronger currency or by becoming a part to an integrated monetary zone with major trading partners.

It was pointed out that during the last decade, particularly in Latin America, an increasing number of countries have looked for answers to the evident weakness shown by their currencies in what can be termed as a ‘denationalization’ of their monetary systems. In such cases, national currencies have been totally or partially replaced by a foreign currency in the understanding that the latter is a sound, stable and appropriately convertible currency, capable of confronting the challenges posed by globalization.

Note was made during the discussions that recurrent international financial crises having a severe impact on Latin American exchange and stock markets –whether or not their economies’ macroeconomic aggregates were balanced or they had undergone severe structural adjustment programs– have given rise to the idea that a dollarization of domestic transactions might allow for placing the continent on a firm basis towards sustained economic growth.

Nevertheless –whatever dollarization approach was implemented, whatever its scope and depth, and whether or not prior conditions were met– there was a consensus on the need to consider both the advantages and disadvantages of such a policy in order not only to ascertain the viability and feasibility of such a complex and problem-laden process but equally how sustainable such a radical approach can be in the case of economies with serious structural imbalances.

In considering the benefits derived from the dollarization process in Latin America, its proponents advanced, among others, the arguments that the regions’ economies, by substituting unstable domestic currencies for the US dollar, would gain an important dynamism, their interest rates would become substantially lower, exchange risks would be eliminated with positive impacts on trade and investment flows, and the level of inflation would tend towards that of the United States.

On the other hand, a number of concerns related to the costs of dollarization were advanced, underlining among others the following negative aspects: a) loss of monetary sovereignty by placing it in subordination to decisions by the Federal Reserve; b) loss of monetary and fiscal economic policy-making tools; c) disappearance of the central bank as the domestic banking sector regulator and lender of last resort; d) fragmentation of the country’s international reserves; e) loss of seigniorial revenues.

5. Restructuring the Financial and Banking Sectors

Among possible alternatives to address existing situations mention was made of the need to regain control of central banks and to regulate the banking system as a whole in order to make them responsive to credit demand and favor production by way of making illegal or placing high interest rates or high taxes on speculative activities.

Taking into consideration the importance of small and medium enterprises (SME’s) for the economies of the region and the developing world in general, extensive discussions were held on how segmented credit policies tend to exclude SME’s from access to the major financial flows while at the same time high intermediation margins result in low passive rates of interest and in high active rates on production activities.

It was equally noted that imperfections and voids in the domestic financial markets call for state intervention and for development banks to play a more active role in shifting towards high priority economic and social sectors otherwise disregarded by financial markets, investment promotion, technological modernization and the provision of non-financial services.

The notion of development banks conceived, as they were at a certain point in time, as purveyors of financing at below the market costs on the basis of interest rate subsidization, was by consensus rejected as erroneous. Development financing should not place emphasis on low cost credit. It should be understood within a systemic approach that would include access to risk capital, incentives for the adoption of new production and management technologies, incentives to accessing new markets, support for an international presence, preservation of the environment, etc.

It was reiterated that development and promotion banks could not be indiscriminately established to cater to all kind of clients or activities. They must, on a selective basis, support projects with either private or social profitability. It was noted that although in market economies development banks fill voids left by the market they must nevertheless preserve their financial strength for the higher purpose of assisting our countries find, in the midst of the promises and risks posed by globalization, the way forward towards economic and social development.13

6. Reliance on External Financing

When considering external financing in emerging economies, in particular those belonging to the Latin American and Caribbean region, a strong reliance on bond emissions in the international capital markets was noted. A reduction of dependency on such a vulnerable source was predominantly considered as an objective for the long term. Recent trends indicate that country-risk perceptions in the bond markets tend to aggravate both contagion phenomena and deterioration in macroeconomic fundamentals. It was also noted that financing in euro-obligations is governed by a stark rationing logic. When considered together with the lack of coordination prevalent in the bond markets during crises situations, such rationing tends to prolong and increase growth volatility.

As regards foreign direct investment flows received during the last decade, it was underlined that such inflows should not detract the countries of the region from the goal of reducing their reliance on external financing. Several participants warned that such high levels of investment flows, centered on a very reduced number of countries, might not remain as high in coming years and that they are generating increasingly higher net dividend payments.

The need to develop domestic capital markets in the countries of the region and to foster domestic savings was justified. Creating a local long-term debt market, as exist in the majority of developed countries, should prominently figure in the regional financial agenda.14

7. The External Debt

One of the most debated issues was no doubt that of the foreign debt of developing countries and in particular Latin America, considered to have been an outstanding business for the creditor banks. In 1990 developing countries owed about US$ 1.4 trillions. By 1999 the amount had reached US$ 2.5 trillions. Debt service payments between 1990 and 1998 amounted to nearly US$ 2 trillions, an amount higher than the US$ 1.1 trillion debt increase for the period.

The lack of coherence and effectiveness of the creditors' strategy towards indebtedness, including the Highly Indebted Poor Countries Initiative, was stressed. Data on the proposal showing that it centers on achieving a sustainable level of debt but that, by disregarding the high incidence of external factors on the future evolution of debt, it does not take into account those countries’ capacity to do so were presented. Among such external factors are, to mention just a few, interest rates movements, shifts in the terms of exchange and a propensity towards preserving protectionist measures by developed countries.

The Highly Indebted Poor Countries Initiative was debated on the grounds of its own limitations. Its major limitation derives from the fact that is part of the traditional IMF strategy of adjustment as a precondition for new financing. Under the present circumstances, servicing the portion of debt not covered by the initiative continues –by way of new credits, restructurings and accumulated arrears– to feed the vicious circle of external indebtedness, thereby constraining even more those countries’ possibilities to develop. There was, in fact, consensus in pointing out that the initiative does not constitute a long-term solution to the social crisis experienced by those countries. It is rather an instrument to exert control on and interfere with the poorest and more highly indebted countries’ national development policies in order to insure their insertion into the global economy under neo-liberal standards.

Recognition was nevertheless given to the fact that debt cancellation is being increasingly considered, however by itself it does not solve the issue at the core of the debt phenomenon. Even though it would represent a much welcomed respite for debtors, if debt cancellation is not accompanied by ways and means to insure a sustained flow of resources in concessional terms and a true insertion into the global economy, the debt problem will tend to multiply in time.15

The need to create a Debtors’ Club in order to be able to adopt positions as a group and break the traditional case-by-case approach was upheld during the discussions on the external debt problem. In the same line of thought the possible creation of a Latin American Forum on External Debt was considered. Such a forum would serve the purpose of divulging in each country the historical, economic and political precedents of external debt in order to mobilize public opinion in favor of its cancellation.

IV. Globalization and Economic Integration in Latin America and the Caribbean.

Economic integration was understood to be a process of multiple dimensions. Differences between integration agreements established among developed countries and those underway between developing economies were noted. Obstacles faced by the latter as a consequence of the adverse impact of policies carried out by some developed countries and by international financial institutions were thoroughly analyzed.

1. Integration Among Countries with Different Levels of Development

Problems associated to economic integration between partners enjoying different levels of development, as well as the risks posed by agreements concluded between countries of the North and the South, held an important place in the debates. Other integration processes were equally reviewed, in particular those of the Common Market of the South (MERCOSUR), the Andean Community (CAN) and –as regards its most recent developments– the Latin American Economic Integration Association (ALADI).

Interesting discussions took place in relation to monetary issues and economic integration, as well as regarding how both issues are dealt with by the European Union and, in comparison, Latin America. The EU’s Common Agricultural Policy (PAC) and its terrible effects on developing countries was equally the subject of considerable discussions.

Nevertheless, the core of the discussions took place around the link between integration and economic development, particularly as regards Latin America and the Caribbean. Interesting presentations and exchanges of views gave insights into how the regions’ integration processes impact its development, the challenges integration faces in the coming years and the requirements such processes must satisfy in order to meet the expectations placed upon them.

It was argued that integration among unequal partners should be of mutual benefit for all participating countries or regions. Nevertheless, the conditions to ensure that integration among unequal partners is beneficial to the weaker ones need to be further clarified. Among the many suggestions put forward during the debate, the need to attract investments that foster a higher level of structural competitiveness in the weaker partners was, among others, retained. Investment promotion policies are to be undertaken in the framework of industrial policies geared towards increased factor-productivity, better product-quality, higher capacity to adapt to market trends, better after-sale services, financial and trade reliability, etc. Well-defined human resources and technology-investment policies are, in this regard, deemed to be essential.

In order to insure that the suggested measures be truly effective, consideration was given to other elements judged to be of an equally critical nature, such as: appropriate financing, a sound long-term national strategy, a dynamic domestic environment based on macroeconomic stability and on appropriate exchange-rate policies. Regional integration would then, as a consequence of its multiplying and scale-enlargement effects, be able to translate into, among other benefits, expanded markets, new enterprises, job creation, greater specialization within sectors and –if coordination among partners were to be truly effective– into higher levels of reliability and credibility.

A consensus emerged around the understanding that weaker countries should not base their comparative advantages within an integration process on wage containment policies, reductions in the fiscal burden or on a curtailment of social expenditures. Nor should they rely on an intensive use of natural resources and a low-wage labor force since such policies would have a counterproductive effect and would contribute neither to long-term economic growth nor to social development.16

A presentation in contrast with this line of thought addressed Mexico’s experience as a member of a Free Trade Agreement in association with highly developed countries such as Canada and the United States. Such association has allowed for a dismantling of barriers on goods, services and financial flows heading south thereby basically placing that agreement at the service of transnational corporations. These corporations have gained access to markets enjoying strong potential growth and low cost labor as well as the stability required for their production, trade and financial activities.

Some participants were of the view that beyond the positive aspects these agreements have from a macroeconomic standpoint their social implications were clear for the developing partner: unemployment growth, reduced purchasing power, increased social and regional imbalances and more poverty.17

2. Agreements Between the European Union and Latin America and the Caribbean

Relations between the European Union and Latin America were reviewed from a more general perspective. The projected Free Trade Agreements between the EU and Mexico, Chile, MERCOSUR, Central America and the Andean Community were considered. It was noted that from an economic standpoint many EU countries have important business interests in Latin America. Spain, in particular, has displaced the United States as the major foreign investor in the region although Germany, France, Italy and the United Kingdom are also present. Europe well understands that the Latin American and Caribbean region, where some population segments enjoy mid-and-high level incomes, has important potentialities as an export market for European goods and investments if its growth potential improves.

Latin American interests vis-à-vis the European Union were equally considered. Since relationships and priorities differ from one actor to the other, it was evident that no uniform judgment could be made. It was felt that from a strategic perspective Latin America and the Caribbean might gain from more diversified foreign relations and from trade and financial relationships less centered in the United States than has historically been the case, in particular for some countries. For the region, the European Union plays in this context an overwhelming role taking into consideration it is at the present time the most important economic bloc, is home to a third of the world’s population an enjoys a high purchasing power.

The most important obstacle facing an expansion of relations between Europe and Latin America is the great trade imbalance existing between both regions. This imbalance can be seen in the structure of exchange flows and in the growing trade deficit. It can also be perceived in the different relative importance each region has vis-à-vis the other in the context of total exchanges. During the 90’s, Europe’s share in Latin America’s total exports went from 24% to less than 14%. Traditional exports and low added value products represent 2/5 of Latin American exports towards Europe. Nevertheless, interregional trade has grown as a consequence of Latin American imports from Europe.

The EU’s Common Agricultural Policy deepens the existing asymmetries in EU/LA trade relations since its European proponents have been extremely reluctant to lower agricultural subsidies. This is particularly harmful to Latin America and the Caribbean where external revenues depend to a large extent on agricultural products exports. Non-tariff barriers on other goods exported by the region such as antidumping measures, phytosanitary and environmental regulations, among others, place additional difficulties on an expansion of trade flows.

A consensus emerged around the fact that it will not be easy in the short term to improve market access in the EU for the region’s agricultural exports. The region should therefore actively prepare a negotiating agenda that might allow it to meet other more realistic goals in the financial, educational, cultural, development cooperation and environment fields and to make progress towards more balanced relations with the European Union.

One other aspect of the EU/LA relationship concerns Latin America’s open regionalism. Points of view included both the need for further opening and further diversification of each sub-regions’ external relations, thereby tending towards a greater balance in relations with third parties, as well as a concern on whether such opening might be detrimental to stronger regional bonds and to a greater and more effective regional negotiating power.

3. Strengthening Regional and Hemispheric Integration

The many and fundamental challenges and uncertainties regional integration faces due to the FTAA, one of the most immediate conceptual and practical dilemma to be sorted out by our continent’s social scientists and politicians, were reviewed. It was agreed that the process of Latin American and Caribbean integration is at a turning point in which the achievements obtained at the sub-regional level must be made regional, an essential step in light of future hemispheric or multilateral negotiations, or risk losing effectiveness with partial agreements.

As regards sub-regional arrangements, several references were made to MERCOSUR, highlighting its achievements, among them: the Customs Union, the consolidation of a permanent institutional organization, its agreements with third parties, the simplification of procedures regarding across the border movements of people and goods, the harmonization of technical rules and regulations and the will to initiate macroeconomic coordination. Also, reference was made to the institutional differences between Brazil and Argentina, particularly as regards the treatment of imports, and to the delay in the establishment of the common external tariff and the trade liberalization program.18 Nevertheless, it was acknowledged that MERCOSUR is the integration process that generates the most positive expectations within our region.

The Andean integration process was discussed, highlighting its limitations and possibilities. It was agreed that the goal of establishing a Common Market by the year 2005 is too ambitious, considering that after thirty years the Andean Community is still an imperfect customs union of three members, since Peru and Bolivia have not assumed similar obligations. As for services, all countries have initiated liberalization and privatization processes. Regarding the movement of capital strides have been made in coordinating supervisory systems and a certain convergence of national norms has been achieved. However, it is still necessary to define a common position that may reduce the possibility of unilateral actions regarding foreign direct investment.19

It was acknowledged that in order to strengthen sub-regional integration arrangements, financial cooperation, the harmonization of macroeconomic policies, a common foreign policy, the dispute settlement system and greater civil participation must be promoted.20 More importance was assigned to the improvement of rules and institutions than to trade issues.

Compared with the strides made by sub-regional integration arrangements, it is disheartening to witness the stagnation of regional processes at a time when agreements are being entered upon with third developed countries and groups of countries. If negotiations within ALADI do not conclude within the near future then it is possible that they will be considered under a wider scope such as the FTAA, given the latter’s increasing dynamism. The question of whether ALADI member countries are willing to take a decisive step to transform sub- regional achievements into regional ones remained unanswered.21

Another problem that attracted attention was that of currencies’ sovereignty and exchange rate stability. In view of the threats financial crises represent for productive economies, it was argued that a supra-national organization should be established to act when such crises occurr. The experience of the euro, with its positive and negative effects on the members of the European Union was compared to the different monetary policies within sub-regional arrangements. The alternative of a common Latin American currency was also debated, together with the prerequisites that must be met for its adoption and the risks posed by the loss of monetary sovereignty.

4. The Role of Integration in Regional Development

The link between integration and development was a particularly polemic issue. Representatives from Latin American integration processes argued that the region couldn’t develop without a coherent regional integration structure. They added that Latin America’s future cannot be conceived as separate from regional integration and that should countries fail to consolidate their integration efforts within a short period of time, the process of globalization may later make such consolidation impossible.

To bolster the view that integration arrangements exercise a positive influence over Latin America’s development, reference was made to the greater dynamism of intra-regional trade, compared with flows with trade flows with the rest of the world, the importance of trade between industries and the increase in the number of high aggregate value products in reciprocal trade.

This position was widely shared, however it was warned that the agendas of the different Latin American and Caribbean integration arrangements do not grant enough priority to some problems whose solution would greatly contribute to creating the conditions for development. These are: scientific and technical progress and the training of human resources to achieve more real competitiveness rather the false competitiveness based on lower labor costs and monetary devaluations.

The new economy issue is a priority of Europe’s integration process. This implies the introduction of new technologies and making strides in the information process, issues that are not at the center of attention in our region’s integration processes. Also, the problem of different development levels and the need for additional resources for more backward regions, or programs aimed at reducing poverty, have not been granted sufficient attention. When convergence is discussed generally reference is made to technical indicators at the macro level and the real nature of convergence is not analyzed.

And yet convergence causes many anxieties. It has been achieved on the basis of common traits of the neo-liberal model applied by most of the countries of the region (liberalization, deregulation, privatization, a decrease in the role of the state in the management of the economy and greater emphasis on market forces, etc.). Nevertheless, the policies and the instruments that have been applied do not necessarily coincide and this has caused much controversy, such as that resulting from Brazil’s devaluation of the real and its negative effects on Argentina. The possibility of continued progress in the field of integration is increasingly doubtful without a specific type of convergence within each sub-group and the different regional arrangements.

This issue cannot be viewed as separate from that of supra-nationality, another challenge for some sub-regional arrangements, particularly MERCOSUR. The question of supra-nationality is not an easy one to solve. Should member countries cede their autonomy and decision making capacity to supra-national bodies, in exchange for a more dynamic integration process, or should they hold on to their historical independence and delay the implementation of joint agreements, fail to honor decisions or let differences between members be solved with time? To accept or reject supra-nationality, to what level and in which bodies, are questions whose solutions have not met with a consensus. However, most point to the need to improve regional integration’s institutional mechanisms so that they may better face the challenges of globalization and insure member countries’ basic interests.

It was also pointed out that, without renouncing the struggle for recovering internal sovereignty, this can be created on a wider level, strengthening regional integration between equals. This would grant countries the opportunity to establish priorities for the productive system through a process of re-industrialization. Within this context attention was called to the fact that should the current sub-regional integration arrangements blend with the FTAA project, then sovereignty will be subordinated to US interests and the more complex Latin American industries will be wiped out by competition from the USA and Canada.

The proposal was put forth to create new entities comprising integrated countries, based on supra-national understandings, in order to promote specific projects decided upon by all countries of the region. This would be something similar to the European Economic Community’s initiatives regarding coal and steel, or nuclear research at the beginning of the fifties, when countries gave up part of their sovereignty for the benefit of all in view of the strategic importance of those products for the group’s economy.

Similar projects were suggested for Latin America and the Caribbean in the areas of technological development, nuclear research, electric power interconnections between several countries, the creation of common air and maritime fleets, among others. A new dimension is thus granted to integration, one that transcends trade issues and expands the struggle for sovereignty to the sub-regional and regional level, increasing the region’s international negotiating capacity. To summarize, this thesis proposes rescuing national sovereignty by sharing it through integration. This would allow Latin America to expand its auto determination regarding such issues as the size of the internal market, the external debt, the fiscal system, and industry guidelines, among others.22

Touching upon courses of action as alternatives to the neo-liberal position, some speakers questioned the idea that transnational enterprises are positive forces for development adding that communities, both local and regional, are the major agents for change.23 The idea is not to separate the region from world trade but rather to develop a regional development project based on public policies that strengthen its independence and contribute to the establishment of a new world order.24

The positive effects integration arrangements experience as a result of their opening up to the world economy, particularly the challenges derived from competition, which lead to greater competitiveness, were also analyzed. In this regard, it was underlined that the vast number of agreements signed since the nineties do not envision closed or protected economies.25

5. Globalization and Regionalization

The analysis of the above issues led to a discussion on the link between globalization and regionalization. Some felt that both processes are complementary to each other, while others saw them as opposed. No consensus was reached on this matter.

Regarding small and vulnerable economies a proposal was presented to make possible their insertion into the world economy by using the advantages posed by regional cooperation. The difficulties these countries face in their international trade are due to the limited scope of their internal market, little diversification of exports, volatile income, weak road and transportation networks, a limited number of skilled human resources and institutional limitations. The overpowering weight of transnational enterprises and the major developing countries, which distorts competition, highlights these difficulties. In this regard, it was suggested to evaluate the possibility of those countries establishing competition policies and legal frameworks as part of their development strategies.

In view of the complexity of the issues related to a competition regime, its high costs and time required for its adoption, the meeting recommended the adoption of sub-regional and regional competition policies that may allow for an expansion of internal markets and economies of scale. This would increase the region’s negotiating capacity and strengthen cooperation and coordination between the members of an area. The positive experience of CARICOM and the Andean Community in this regard was mentioned.26

After many fruitful hours of debate consensus was reached that regional integration may contribute to strengthening transnational capital, but also that among developing countries such processes could provide a way to face the threats of globalization (particularly those linked to external shocks and their pernicious effects on labor markets). They would also make it possible to take advantage, under better conditions, of the opportunities derived from globalization, such as the expansion of export markets, more competitive import prices and conditions, greater access to external financing, technology and new knowledge and ideas.

The way integration processes are designed will determine whether they will contribute or not to the progress of its members. Their influence on member countries’ development will depend, to a great extent, on the objectives established, the actors that will lead the process, the character of their institutions and the negotiating mechanisms adopted.

A greater integration among developing countries must be sought, as long as it contributes to put an end to these countries' growing marginalization from world markets, facilitates access to financial flows under better conditions and contributes to achieving a better position within the global production and service chain.

Within the world economy regional integration is a phenomenon that is growing in strength. It is hard to picture the future of developing countries without strong economic and social ties between them that may be strengthened in the short term before other processes with hegemonic pretensions render this coordination difficult. This is essential for Latin America and the Caribbean, a region that needs urgently to increase its external insertion and to stimulate economic growth. It is an important, even though insufficient condition for development.27

Notes

1. Cuba’s National Economists’ Association and the Latin American Economic System wish to thank the Center for International Economic Research of the University of Havana for its valuable contribution in the preparation of this document.

2. “Globalization and the Development Agenda”, José Antonio Ocampo, presentation delivered at the III International Meeting of Economists on “Globalization and Development Problems”, held in Havana on January 29-February 2, 2001.

3. Presentation ,“Developing Countries’ Insertion into the Global Economy”, Tugores, Ques, J.

4. Ibid.

5. UNCTAD (2000), Action Plan. TD/386, Bangkok, February, p.47.

6. Presentation, “ The Institutional Challenges of Globalization and Developing Countries’ Insertion”, Andrés Solimano.

7. Relator´s report, III Meeting.

8. Presentation, Gould, E – Dobbin, M.

9. Report by the International Trade Commission of the III Meeting. Antonio Romero, G.

10. “Alternative Macroeconomic Policies to Counter Economic Instability and for Sustained Growth". Presentation by Arturo Huerta G.

11. “Regulation and Control of International Financial Flows”. A Presentation by Giambattista Negretti.

12. “The Tobin Tax (TT): Technical Feasibility and Use for a New International Cooperation Process”. A Presentation by Leonardo Fernando Cruz.

13. “Latin American Development Banks in a Global World”. A presentation by Rommel Acevedo.

14. “External Financing and Growth in Latin America: Recent evolution and Perspectives”. A presentation by Luis Miotti and Carlos Quenan.

15. “The HIPC Initiative for Debt Reduction: A Solution or a Distraction?” A presentation by Marlen Sanchez.

16. “The Challenges of an Association Among Unequal Partners”. A presentation by Paul Lowenthal.

17. “Globalization, Integration and Neoliberalism. Prospects for Latin America”. A presentation by Arturo Perales and Francisco Davila; “North-South Free Trade Agreements: Risks Faced by Developing Countries. The Mexican Case”, by Odile Cartel.

18. Presentation, “Stabilization and Integration Policies”. Celia Himmerfarb.

19. Presentation, “Limits and Possibilities of the Andean Integration Process”. Alan Ferlie.

20. Presentation by Jorge Vega, in representation of the Secretary of the Andean Community of Nations.

21. “Integration’s Crossroads”. Presentation by ALADI’s Secretary, Juan F. Rojas Penso.

22. Presentation, “Creating Sovereignty. The Growth of National Sovereignty”. Alfredo Calcagno and Eric Calcagno.

23. Presentation, “Regional Integration and Economic Globalization. A Problem-ridden Issue for Latin America and the Caribbean”. Maribel Aponte.

24. Presentation, “Latin American Dependency”. Carlos Eduardo Martins.

25. Presentation, “The Challenges of Globalization and Regional Economic Integration for Developing Countries”. S. Bakhtiari.

26. Presentation, “The Insertion of Small and Vulnerable Economies into the World Economy. Advantages of Regional Cooperation for Trade and Competition”. Ana Maria Alvarez.

27. Presentation, “Growth with Equity Versus Neo-Liberalism”. Ricardo Ffrench-Davis.

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