February 17, 2004
Translation: FTAA Secretariat
FTAA – CONSULTATIVE GROUP ON SMALLER ECONOMIES
PRODUCTION DEVELOPMENT FUND
PRESENTATION OF THE SUBJECT
Concern surrounding the need to address the issue of disparities and to
turn trade into a tool for furthering development is not exclusive to
the FTAA. Such concern can in fact be found in other realms, since the
widespread economic opening processes have failed to automatically bring
about the conditions needed to overcome the problems of backwardness,
inequality, and poverty that beset so many countries around the world.
At the multilateral level, both the United Nations System of
Organizations and the World Trade Organization (WTO) have shown a
growing interest in tackling the issue.
As far as the United Nations is concerned, the Heads of State and
Government of the whole world jointly agreed, at the Millennium Summit
held in 2000, to adopt a far-reaching plan to facilitate the pursuit of
worldwide development goals. These goals (reducing extreme poverty,
promoting gender equality, expanding education, reducing infant and
maternal mortality, reversing the loss of environmental resources, and
improving reproductive health) have thus become the cohesive force
driving many of the activities and defining the targets of agencies such
as the OECD, the IMF, the World Bank, etc. In line with this approach,
the International Conference on Financing for Development, held in
Monterrey, Mexico, in 2002, represented a significant step towards
reversing the declining trend in official development aid, and thereby
ensuring improvements in the international arena in which the efforts of
the least advanced countries are being undertaken.
As far as the WTO is concerned, it should be borne in mind that the
Marrakesh Agreement of 1994, whereby the organization is established,
states that: "...the need for positive efforts to ensure that developing
countries and the least developed countries secure a share in the growth
in international trade commensurate with the needs of their economic
development...” and, to a large extent, that the controversy about the
implementation of commitments assumed in the Uruguay Round stems from
the human limitations and insufficient resources developing countries
face when trying to create the infrastructure needed for them to meet
their new obligations and adapt their legislation accordingly,
limitations which, according to the WTO itself, “must concern every
Member, not just the countries subject to them”
1/In this respect, in
another recent WTO document, it is suggested, as far as outstanding
institutional tasks are concerned, that: “It is a core function of the
Secretariat to assist developing countries to build the human and
institutional capacity they need to participate more fully in the work
of the system and derive maximum benefits from it… Of the WTO’s
members…80% are developing countries. The development dimension
therefore has to be, and is, a central element in the WTO’s activities.”
At the Doha Ministerial Meeting, the WTO also highlighted the importance
of helping developing countries in their integration processes, stating
that: “The Doha Development Agenda recognizes that technical assistance
and capacity-building are essential to assist developing countries to
implement WTO rules and obligations, prepare for effective participation
in the work of the WTO, and thus to benefit from the open rules-based
multilateral trading system. Therefore, all Members of the WTO and the
Secretariat have the shared responsibility to generate support for
technical assistance and capacity-building in favor of developing and
less-developed countries.”3 /
Concern about the differences in the sizes and levels of development of
the economies has always been present in the negotiations for the Free
Trade Area of the Americas (FTAA). Since the Santiago and Miami Summits,
both the Declarations of Principles and Action Plans and the mandates
handed down as a result of those documents, have stressed the importance
of the FTAA process contributing to raising living standards, to
improving the working conditions of all peoples in the Americas, and to
better protecting the environment, all areas in which addressing the
issue of disparities plays a key role. In this respect, in the Toronto
Ministerial Declaration of 1999, the Ministers stated: "…We reiterate
that in designing the FTAA we shall take into account differences in the
levels of development and size of the economies in our Hemisphere, to
create opportunities for the full participation of the smaller economies
and to increase their level of development. We recognize the broad
differences in the levels of development and size of the economies in
our Hemisphere…”4 /
GENERAL FRAMEWORK FOR THE PDF
Since the start of the negotiations for the creation of the FTAA, and
even during the preparatory stage for those negotiations, the need to
address the disparities that characterize the group of countries
participating in the process has been repeatedly emphasized in various
agencies and at various levels of negotiation.
In this respect, in the Buenos Aires Ministerial Declaration of 2001, it
was stated that: "We reaffirm our commitment, embodied in previous
Ministerial declarations to take into account, in designing the FTAA,
the differences in the levels of development and size of the economies
of our Hemisphere to create opportunities for the full participation of
the smaller economies and to increase their level of development. We
recognize the broad differences in the levels of development and size of
the economies in our Hemisphere and we will remain cognizant of those
differences in our negotiations so as to ensure that they receive the
treatment that they require to ensure the full participation of all
members in the construction and benefits of the FTAA”5. The same
Ministerial Declaration goes on to add: “We reiterate the importance of
cooperation to enable the strengthening of the productive capacity and
competitiveness of those economies.” 6.
Furthermore, the Declaration issued at the following Ministerial Meeting
(Quito, November 2002) reasserts: “We consider that the establishment of
the FTAA, through increased trade flows, trade liberalization and
investment in the Hemisphere, shall contribute to growth, job creation,
higher standards of living, greater opportunities, and poverty reduction
in the Hemisphere. For this to be possible, the establishment of the
FTAA shall promote the application of policies oriented to economic
development, promoting the generation of employment and the effective
operation of labor markets in the Hemisphere.”
The existence of large disparities between the countries, and in many
cases within them, poses one of the major challenges facing the FTAA and
makes addressing these disparities one of priority issues in the debate
surrounding the negotiations because if it is not addressed, the
functioning of the FTAA itself could further increase the differences
among the participating countries that currently characterize the
situation during the negotiating stage of the Agreement.
Although the establishment of the Consultative Group on Smaller
Economies (CGSE) in 1998 and the creation of the Hemispheric Cooperation
Program (HCP) in 20028 are both initiatives undertaken to respond to the
existence of profound inequalities in the FTAA, it is clear that they
fall short of addressing the problem properly, starting with the fact
that to date, special and differentiated treatment has still not been
sufficiently extended to the economies which, without being “smaller”,
are characterized by a low average level of development and/or by the
existence of regions or sectors that require special support in order to
be able to successfully handle the hemispheric free trade the FTAA will
In short, for many countries in Latin America and the Caribbean, given
the level of backwardness and inequality that characterizes them,
ensuring an adequate link between free trade and the promotion of
production is absolutely essential. This link not only needs to be a top
priority in the multilateral negotiation processes, but also, and
especially, in the FTAA negotiations, due to the important role this
area plays and will play in the international insertion of most of the
region's countries for whom hemispheric trade accounts for high
proportions of their total trade (see Table 1).
TRADE IN THE FTAA AS A PERCENTAGE OF TOTAL TRADE
OF THE PARTICIPATING COUNTRIES AND GROUPS
CARICOM (9 COUNTRIES)
SOURCE: ECLAC: Latin America and the Caribbean in the World Economy,
In light of the above considerations, it is essential that addressing
the national, regional, and sectoral disparities in an increasingly
intense manner be incorporated into the FTAA process by drawing up
proposals and defining actions that go beyond what has been discussed so
far, and it is in this context that the creation of the Production
Development Fund (PDF) is being submitted for consideration.
OPERATION OF THE PDF
The more specific aspects of the PDF should be analyzed and negotiated
within the FTAA process and, in particular, as part of the creation and
implementation of the Hemispheric Cooperation Program. This proposal
does not therefore aim to provide details on the modalities for the
operation of the PDF, but rather to outline the more general parameters
that should guide the definition of the fund's operations by providing
initial responses to some of the main questions that can be used to
direct its implementation.
For this purpose, various international experiences of support for
development and lessening disparities have been taken into account such
as the: Structural Funds and the Cohesion Fund of the European Union9 /,
the Nordic Development Fund10 /,
the OPEC Solidarity and Cooperation Fund
for Southern Countries 11/, el
OPEC Fund for International Development and
the Association of Caribbean States12 /; at the regional level, the
Financial Fund for the Development of the River Plate Basin13 /, and the
Special Fund of the Association of Caribbean States.”
In our opinion, the following questions and answers could serve to
outline the general parameters for the establishment and operation of
|• What is the rationale for creating the Fund and how will it fit into
the general architecture and progress of the FTAA?
• Does it replace or complement the initial agreements and initiatives
that already exist regarding Special and Differential Treatment (SDT)?
Would it form part of the Hemispheric Cooperation Program (HCP)?
• Would the Consultative Group on Smaller Economies be responsible for
discussing the establishment of the fund?
|• Concern about the differences in the sizes and levels of development
of the economies as well as the need to transform production from being
a tool for international trade development into a tool for economic
• The Fund would be included among the existing initiatives in the
Agreement and would complement existing SDT initiatives.
• The proposal for the Fund should initially be promoted in the
framework of the HCP, within the CGSE. In the second stage of the
discussions, the initiative for the Fund could be taken to the TCI.
|• What problems and disparities is the operation of the Fund expected to
address: Disparities among countries (channeling resources towards
“smaller economies”, “developing countries” or “less developed
• Disparities among productive sectors (channeling resources
towards “troubled” sectors)? Disparities among regions within
countries (channeling resources towards the backward regions)?
Several or all of them?
| • The intraregional and/or sectoral disparities would be addressed
by channeling financial and non-financial resources towards these
regions or sectors.
• The basic unit of analysis should NOT be the country, but rather,
zones or regions within countries, or among various countries, as well
as specific production sectors.
|• Where would the resources for creating the Fund come from? Only from
donor governments in the hemisphere? Also from international agencies?
• From governments outside the hemisphere? From private organizations
and/or ones outside the hemisphere?
• Would the Fund assume debt (taking out bank loans, issuing bonds)?
• How would the use of the Fund’s resources be defined, and what
modalities would be used to channel the resources to the recipient
• Regarding the use of resources: Are they to be allocated to the
governments for the latter to distribute them internally? Are they to be
allocated on the basis of the presentation and approval (at some
hemispheric instance) of specific projects?
• Regarding the modalities: Only donations?
• Also preferential loans?
Fund’s resources would initially come from the private donors
and the governments of the hemisphere.
• The workings of other funds or financial aid institutions should be
studied to assess the feasibility of implementing financing modalities
with proven effectiveness.
• As the Fund becomes established and consolidates its operations, it
should expand its financial and non-financial aid options and
instruments, as well as its sources of financing.
• Resources must be allocated as directly as
possible to the final subjects or end users. The channeling of resources
through government instances outside of the sector or region must be
• The idea of allocating funds per program/project is compatible with
the criterion of direct allocation and could be applied in general.
There are some highly particular regions or sectors whose needs cannot
be served through programs/projects. In these cases, the financial aid
should be coordinated through government authorities and private
• As the Fund becomes established and consolidates its operations, it
should expand its financial and non-financial aid options and
|• Which would be the donor governments within the hemisphere?
• Would criteria be established for quantifying the expected amounts of
• What would the donor governments’ level of commitment be regarding
|• Fair contribution criteria should be established
so that ALL the governments of the countries of the hemisphere
contribute resources to the Fund according to their capacity to do so.
• Clear criteria must be established to define the contribution capacity
of each State.
• Contribution capacity could be directly linked to the value of each
country’s total exports weighted by an added value exports indicator.
• The governments’ levels of commitment regarding their contributions to
the Fund should be similar to those assumed with respect to all the FTAA
institutions and commitments.
|• Which will be the receiving countries, sectors and/or regions?
||• Any zone/region or productive sector of the FTAA that qualifies under
the requirements established for the allocation of resources is eligible
to benefit from the Fund.
• We propose two basic indicators, among others, for the selection of
zones/regions or sectors:
• First, external vulnerability, measured through a weighting of three
factors: export diversification, measured as the degree of participation
of 5 main products in total exports; the degree of concentration in one
geographical export destination; and finally, the degree of dependence
on the export of primary products.
• Second, the kind of indicators that refer to the lack of
opportunities, defined through the weighting of the per capita GDP, the
Human Development Index, poverty indicators, and the size of the income
gap expressed in terms of the GINI coefficient.
elements or variables would be used as a basis for identifying
and allocating the amounts to be received?
||• Priority criteria must be
established for deciding which cases are eligible for aid. The following
criteria are suggested:
• Capacity to generate positive production and/or commercial link-ups.
• Impact on job creation.
|• How will the Fund be administered?
• To what extent will donors and recipients participate in the
administration of the Fund?
• Will only governments be represented, or other sectors as well?
mechanism for administering the Fund must be determined by consensus
among the FTAA countries.
• We believe that the experience of other organizational structures used
by regional funds, such as the ones operated by the European Union,
OPEC, the River Plate Basin, and the Association of Caribbean Basin
States, among others, should be carefully studied. This study could
serve as a basis for determining a transparent and dynamic operations
|• What criteria would be used to define the volume of resources the Fund
• Donors’ possibilities and commitments?
• Needs of the recipients?
|• The initial capital of the Fund will have
to be variable, as contributions may not be financial and the number of
donors to the Fund may vary. Similarly, over time and depending on how
the Fund develops, the dynamics of its operations may change as new
needs are identified among recipients.
|• In what way is the Fund being proposed as a complement (or as a
substitute?) for existing regional (IDB) or multilateral (WB and IMF)
||• In our opinion, the Fund should be an autonomous entity, in
addition to those already in the region.
Finally, it is important to note, beyond the specific modalities
according to which the establishment of the PDF could be approved, that
the creation of a Fund with the general objectives outlined in this
proposal is essential if the FTAA is to effectively contribute to the
development of production and competitiveness of the participating
countries and thereby raise the living standards of most of the
population in those countries.
The WTO, Capacity
Building and Development… a Proposal, 2001.
WTO: Op. cit.
WTO: Doha Development Program
FTAA: Ministerial Declaration, paragraph 5, Fifth Trade Ministerial
Meeting, Toronto, Canada, 4 November 1999.
FTAA: Ministerial Declaration, paragraph 5, Sixth Trade Ministerial
Meeting, Buenos Aires, Argentina, 7 April 2001.
Idem, Paragraph 6
FTAA: Ministerial Declaration, paragraph 12, Seventh Trade Ministerial
Meeting, Quito, Ecuador, 1 November 2002.
This Group was established at the Fourth Trade Ministerial Meeting held
in San José, Costa Rica, 19 March 1998. According to paragraph 13 of
that Declaration, the Group’s functions are to: a) follow the FTAA
process, keeping under review the concerns and interests of the smaller
economies; b)bring to the attention of the TNC the issues of concern to
the smaller economies and make recommendations to address these issues.
The preamble of the Treaty of Rome (1957) already mentions the need for
the signatories to "strengthen the unity of their economies and ensure
their harmonious development by reducing the differences existing
between the various regions and the backwardness of the less favoured
regions", and the following funds were later created: European Social
Fund (ESF, 1958), the European Agricultural Guidance and Guarantee Fund
(EAGGF, 1958), and the European Regional Development Fund (ERDF, 1975).
Then, in the 1990’s, driven by the cohesion policies, the Structural
Funds and the Cohesion Fund (for the environment and transport) were
created, and at the end of the decade, the Financial Instrument for
Fisheries Guidance (FIFG) was set up and a chapter on employment
created. A total of 182.5 billion euros have been allocated to the
Structural and the Cohesion Funds for the period 2000-2006.
This consists of Denmark, Finland, Iceland, Norway, and Sweden, and
grants long-term loans (40 years with 10-year grace periods) and under
preferential terms for less developed countries. The fund's capital
consists of 515 million in Special Drawing Rights and EUR 330 million.
This consists of financial aid given under favorable conditions to the
countries of the South that are not OPEC members, as an expression of
solidarity and South-South cooperation. As of February 2003, the
contributions made to the Fund by its member countries totaled USD
The objective of this Fund is to support development programs and
projects in the countries of the ACS in the sectors identified as
priority sectors (trade, transport, sustainable tourism, and natural
disaster prevention and relief.)
13/ According to the corresponding Articles of Agreement (Article 3),
purpose of the Fund shall be to finance, under the terms of Article 1 of
the Financial Fund for the Development of the River Plate Basin,
studies, projects, programs and works to promote the harmonious
development and integration of the River Plate Basin, using its own
resources for this purpose and the resources it administers and obtains
from other sources of financing.” To date, the fund’s capital is USD 200
The objective of the fund is to finance actions that contribute towards
promoting cooperation for development among ACS Members and to further
the integration process in the region.