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Jeffrey Davidow, Assistant Secretary Bureau of Inter-American Affairs Statement before the House International Relations Committee Subcommittee on the Western Hemisphere Washington, DC, October 8, 1997

Thank you, Mr. Chairman, for this opportunity to discuss our relationship with South America. Your convening of this hearing is most timely, Mr. Chairman. Congress is now in the midst of an intense debate on the Administration's proposal and other legislative proposals to renew fast track authority to negotiate trade agreements. This is an issue of great importance. As you know, we believe that fast track is indispensable not only for protecting our trade interests and maintaining our leadership position in this hemisphere, but throughout the world.

This hearing is timely also because of the President's visit within a few days to Venezuela, Brazil and Argentina. The President's visit reflects the major and growing importance of South America to the United States. We have wide-ranging interests and many concerns in common. To illustrate just one aspect of our many-faceted relationship, let me cite a few trade figures. Our exports to Brazil last year totaled nearly $13 billion; that's more than two and a half times what we exported to Brazil in 1990; it's also more than we exported to China last year.

The Deepening U.S. Relationship with South America

The U.S. relationship with South America goes far beyond trade and economics, of course. Our policy in the region aims to keep the United States economically strong and internationally competitive, to promote the principles of democracy, and to increase the level of regional cooperation to more effectively deal with the transnational threats of narcotics trafficking, environmental degradation, and international crime.

There has been a political sea change on the continent over the past two decades. Whereas these were once countries racked by instability, in which elections were often held irregularly and under difficult circumstances, and where the results of those elections were not fully respected, the picture today is much brighter. Every country on the South American continent is now a functioning democracy, with an elected government in place.

Changes of similar magnitude have occurred in the economic arena. Throughout South America, countries are restructuring their economies based on free market principles. Tariffs have been cut to about one-quarter the level of the 1980s. Hyperinflation has been tamed from its peak of over 1,000% to less than 20%. Many South American countries have taken the important decision to privatize state assets; the result is that South America is a leader in the privatization of the power, transportation, and telecommunications sectors.

As a result of this new consensus on democracy and market economics, there is developing much broader and closer cooperation among all the countries of this hemisphere. Bilaterally and multilaterally, we have seen growing cooperation on trade, energy, the environment, counternarcotics, law enforcement, as well as on sensitive political issues such as restoring democracy in Haiti, and resolving the border issues between Ecuador and Peru. South American countries are active participants in international peacekeeping efforts such as helping build the foundation of peace in the former Yugoslavia.

A milestone event in forging the new consensus and spirit of cooperation was the Summit of the Americas we hosted in Miami in December 1994. Perhaps even more fundamental is the follow-up process to the Summit which ensures that the initiatives agreed by the hemisphere's leaders in Miami are being implemented. The process is also preparing the next Summit of the Americas, scheduled for Santiago, Chile in April 1998. The mandate from leaders of our hemisphere is to pursue realistic objectives leading to concrete results in the areas of education, strengthening democracy and human rights, economic integration and free trade, and poverty eradication.

The President's Visit

Our commitment to advancing our goals in each of these areas will take center stage during the President's upcoming South America trip. The President's purpose is to focus on strengthening democracy, confronting shared threats to security and the environment, and extending the reach of open markets. This trip will strengthen a partnership that will form the bedrock of a 21^st-century relationship between the U.S. and the rest of the hemisphere. This trip will also allow the President to build on the blueprint forged by all democratically elected leaders at the Miami Summit and lay the groundwork for a successful summit next April.

The agenda for the President and his counterparts will include sustainable economic growth through free trade and open markets; the educational needs of children and training needs of workers to succeed in the global marketplace; protecting our shared environment; battling narcotics and crime, and building lasting security through an unshakable commitment to democracy, cooperation and respect, and the rule of law.

Specifically, in Venezuela, the President will highlight our close partnership in developing clean and reliable energy supplies, our close cooperation against drugs and crime, and the durability of the Venezuelan people's commitment to democracy. Venezuela is our primary supplier of petroleum. While in Caracas, the President will continue to broaden our relationship to include renewable energy, energy efficiency, natural gas development and integration of energy resources.

In Brazil, the focus will be on putting 21^st- century technologies to work with advanced scientific, nuclear, and environmental applications in space and on earth. We will discuss advancement of our common agenda in the areas of democracy, crime and poverty alleviation, and our broadening security cooperation. Without a doubt, the spotlight will also be on the benefits of more open markets and freer trade that helps improve skills of workers and young people. Both President Clinton and President Cardoso will emphasize that education and technology are the keys to expanding opportunity and prosperity to citizens of this and future generations.

Finally, in Argentina, the President will highlight our close cooperation with Argentina on international security goals and protection of the environment as examples of the region's contributions toward peace and sustainable economic development. The President will address young people in Argentina and the United States in a historic town hall meeting linking several remote locations via satellite, which will give ample opportunity to discuss and highlight our common values, our common challenges, and our common future.

Trade: At the Heart of Our Relationship

Mr. Chairman and Members of the Subcommittee, we cannot underestimate the importance of free trade to the future of our hemispheric relations, and the importance of fast track authority to the achievement of free trade throughout the Americas.

The concept of a Free Trade Area of the Americas, proclaimed by the hemisphere's leaders at the Miami Summit, is the centerpiece of our economic agenda for Latin America as we move toward the Santiago Summit.

The statistics I cited at the beginning of my testimony make clear the stake we in the United States have in the growing South American market. Increased trade means ever-growing investment opportunities and the creation of more and higher paying jobs for U.S. workers. The promotion of greater efficiency and economic growth in the other countries of the hemisphere will create substantial new opportunities for U.S. industry and entrepreneurs. The economic reforms that have been taking place in South America will only be accelerated by the FTAA.

Beyond that, the FTAA has an obvious political benefit, not only by improving the general welfare of all the countries of the hemisphere but by encouraging social mobility. Closed economies keep the best opportunities locked in the hands of the wealthy and the well-connected. Economies that encourage competition reward enterprise and efficiency. The FTAA's emphasis on growth, competition, and innovation is right on target.

A great deal of progress has been made by the technical working groups and meeting of the trade ministers since the Miami Summit. The Ministers will meet again in March in San Jose, Costa Rica to make recommendations on the objectives, approach, structure, and venue of the negotiations. Finally, the 34 democratically elected leaders of this hemisphere will launch the free trade negotiation next April.

Today, there is broad consensus within the hemisphere in favor of the FTAA. Indeed, this proposal has become a highly charged symbol of the new market-based economic model being implemented in the region, of the U.S. commitment to a democratic and prosperous Latin America, and of the new spirit of cooperation between the U.S. and Latin America as equal partners, rather than donor and recipients.

We are now at a point where we must move decisively forward toward the FTAA or our credibility will be challenged and our economic interests in the region will be harmed. At the recent meeting of the World Economic Forum in Sao Paulo, Chile's Economy Minister Alvaro Garcia observed that "trade liberalization is taking place at a very fast pace in the Americas, and any country that is not part of that is losing out."

We agree. Recall that the Western Hemisphere is now covered by a network of trade agreements, and that the U.S. is a member only of one--the NAFTA. Since 1992, more than 20 new trade agreements have been negotiated in Latin America and Asia alone. That means that U.S. exporters will increasingly face tariff barriers that many of their competitors will not.

As long as the momentum for hemisphere-wide free trade remains strong, the disadvantages experienced by our producers and investors will be relatively small and temporary. But if the credibility of the FTAA should fail, investors and corporations will start making their decisions on the assumption of a hemisphere segmented into separate trading blocs.

Fast track is indispensable to our ability to negotiate and implement any trade agreement that would modify U.S. law. Foreign governments are understandably reluctant to enter into agreement with us if they are uncertain that the terms they agree to at the negotiating table will ultimately end up in an entirely different form. By making trade agreements subject to a simple yes-or-no vote, with minimal amendment and delay, fast-track makes trade negotiations possible. Fast track makes high-stakes trade negotiations a mechanism to open foreign markets to the most efficient workers and producers, those right here in the United States.

The best option for maintaining U.S. leadership and credibility would be a broad-based fast track authority which would allow the President to pursue a wide variety of agreements: in the World Trade Organization (WTO), in economic sectors of importance to the U.S., and with emerging economies. This last category would allow us to complete a comprehensive free trade agreement with Chile, to which two U.S. Presidents have been committed. It would also allow us to negotiate and conclude the FTAA.

As you know, Mr. Chairman, fast track is not a new mechanism. The 1974 and 1988 Trade Acts gave U.S. presidents -- of both parties -- such authority. Many of our trading partners conduct business this way. And without it, we will be relegated to the sidelines, forced to watch while the rest of the hemisphere moves ahead with growth-creating trade agreements, thus forcing our exporters into a disadvantaged situation.

Securing new trade authority is fundamental to our strategy: opening markets while improving international environmental and labor conditions. The Administration has made unprecedented progress in defining and advancing core labor standards; we believe that labor and the environment are an important part of the trade agenda for the next century.

U.S. Policy Toward MERCOSUR

As the President will be visiting Argentina and Brazil, it is important to put in context and to clarify the U.S. position with respect to sub-regional trade groupings, in particular MERCOSUR--the Common Market of the South which Argentina, Brazil, Paraguay and Uruguay are in the process of building. Today there is free trade among its four members in many goods; their combined GDP is approximately $1 trillion. Further liberalization is scheduled to go into effect soon; harmonization of economic policies of the four countries is the ultimate goal. Bolivia and Chile have become associate members of MERCOSUR, and negotiations are underway with the Andean Pact and the European Union toward free trade agreements.

The United States firmly supports efforts at greater cooperation and economic integration. We see MERCOSUR, and other groups like it, as contributing to the process of trade liberalization, since it helps members adjust to wider and more competitive markets. Furthermore, MERCOSUR and other such groups are being built within the context of a general lowering of trade barriers to all markets, consistent with international trading rules. Taken as a whole, sub-regional trade integration has reinforced the member countries' overall economic reforms, and is stimulating higher economic growth.

We see all this as favorable to the formation of the FTAA and to U.S. interests. The members of MERCOSUR and other sub-regional groupings have participated actively in the preparatory work for the FTAA negotiations. While there are some differing views on the specifics of the FTAA between the U.S. and MERCOSUR, there is full agreement on the basic principles of the FTAA and the goal of completing the negotiations by the year 2005.

We believe trade integration can also reinforce international cooperation across a whole range of issues -- law enforcement, counternarcotics, protection of the environment. MERCOSUR has proven its importance as a vehicle for acting in defense of democracy in the case of Paraguay in April 1996.

Argentina's Status as a Major Non-NATO Ally

Mr. Chairman, the hallmark of our relations with South America today is mutual respect and cooperation in pursuing common goals. In this vein, we are notifying Congress of our intention to designate Argentina as a Major Non-NATO Ally. Argentina would become only the eighth nation in the world to have such status, and the first in Latin America.

MNNA status, as it is commonly referred to, represents our recognition of the importance of Argentina's leadership and cooperation in the field of international peacekeeping -- notably in Haiti, in the conflict between Peru and Ecuador, in Rwanda, Mozambique, Cyprus , and the former Yugoslavia. Argentina would be eligible for such benefits as priority delivery of excess defense articles, participation in cooperative research and development projects, and advanced training. Granting MNNA status to Argentina does not establish any mutual defense obligation nor does it imply access to advanced weaponry.

Furthermore, other Latin American countries could be eligible for MNNA status, in principle. The consideration of this status for Latin American nations reflects the current high level of maturity and mutual cooperation that characterizes our relations.

U.S. Policy on Arms Transfers

Another important development is the recently concluded review of our conventional arms transfer policy for the region. We have moved beyond the existing presumption of denial of any arms sale that characterized our policy since the late 1970s. We have now established a mechanism that will review all requests for advanced weapons on a case-by-case basis. The new policy will promote stability within a context of continued restraint. It does not sound the opening bell of an arms race, as some have suggested. It simply puts the nations of Latin America on the same footing as the rest of the world and acknowledges the need for civilian leaders to make important strategic decisions on defense matters with the benefit of a range of options, including technology designed and manufactured by the U.S.

Key to understanding our arms transfer policy are the concepts of transparency and restraint. We believe it is important to enable countries in the region to accurately evaluate their security situation and requirements, and thus to avoid unnecessary arms procurement based on flawed information about what other countries may be purchasing. This policy change is designed to foster an environment that encourages confidence and mutual trust, staving off ruinous and ultimately dangerous arms procurement competitions.

A further example of hemispheric consensus was the adoption by the OAS General Assembly in June of a resolution aimed at establishing a legal framework on the issue of advance notification of major arms acquisitions covered by the United Nations Register of Conventional Arms. The laudable goal is to have such a framework adopted at the Santiago Summit next April.

Narcotics

In the areas of counternarcotics efforts and cooperation with many countries of South America, results are mixed at best. The drug trade remains a dynamic and formidable adversary. Hard-won successes in eradication are often outpaced by increases in production and cultivation. As the International Narcotics Control Strategy Report (INCSR) reported earlier this year, the Bolivian Government's voluntary coca eradication program surpassed its annual target and reduced potential coca leaf production 12%. In Peru, the decline in the price of coca leaf has led growers to abandon many fields in the Upper Huallaga Valley; their exodus lowered Peru's coca cultivation last year by 18% to the lowest levels in a decade. However, this decline was more than offset by a 32% increase in both coca cultivation and potential coca leaf production in Colombia.

Perhaps most troubling, the deadly alliance between drug traffickers and guerrilla armies are posing a serious challenge to countries like Colombia. The internal conflict is escalating because the civilian authorities lack strong popular support, the political and economic elites are insular, and the military leadership has no apparent strategic plan for responding to the potent guerrilla threat. The extent of the problem is heightened as Colombia approaches municipal elections scheduled for October 26. Local political officials and registered candidates have been harassed, kidnaped and murdered at the hands of the guerrilla and paramilitary groups. This is the most fundamental threat to democracy, when brave leaders seeking public office are threatened, harmed, or worse in the course of campaigning. We must speak out energetically on the need to end political violence, and must encourage international efforts on behalf of a peace process.

In order to inform this and other interested committees, the Office of National Drug Control Policy (ONDCP) jointly with the State Department issued a report on September 15 that characterized the state of cooperation in the region on counternarcotics and those steps the U.S. is prepared to take to amplify and deepen our collective efforts with the nations of the Hemisphere. We will be working closely with our neighbors over the coming months to assist in the development of long term national counter-drug strategies and regional mechanisms to assess performance and will provide technical assistance.

Conclusion

In sum, Mr. Chairman, on the eve of a presidential visit to South America, we must take stock of the vast opportunities that exist in the economic, financial, scientific, educational, environmental, and commercial areas. The pace of economic integration and harmonization criss-crossing the continent is impressive, a phenomenon which has been accelerated because of the prospect of a Free Trade Area of the Americas by 2005. Government leaders and lawyers, workers and students, investors and entrepreneurs, educators, scientists and inventors throughout South America are breaking down tariff, legal and cultural barriers and are laying the foundation for a century of prosperity, higher living standards, and greater academic and technological achievement. Regional groupings like MERCOSUR are contemplating prospects for common political objectives and are exploring links with the EU and Asia. The dynamic markets of South America are poised for even greater growth which we must help shape and take maximum advantage of.

Stronger ties between the U.S. and South America forged through the Miami Summit process must be complemented by full confidence in our resolve and our seriousness in upcoming trade negotiations. We hope that you will favorably consider renewing fast track authority in the coming weeks.

Mr. Chairman, we hope to count on your support and counsel on these issues in the months ahead.

I am pleased to answer any questions you and your colleagues may have.

Thank you.

[end of document]

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