of Public Affairs
Remarks of Franklin L. Lavin
Under Secretary of Commerce for International Trade
29th CCAA Miami Conference on the Caribbean Basin
Caribbean-Central American Action
December 7, 2005
Good morning, and thank you, Julio [Barea], for that warm introduction. It is a pleasure to be here at the Caribbean Central American Action Conference. I say that for two reasons.
First, CCAA deserves high praise for its leadership role in steering DR-CAFTA to a successful conclusion. It was a hard-fought battle, and we would not be enjoying victory, if it had not been for the enormous effort put forward by the people here in the room today. Thank you all.
Second, even more praise is due to the DR-CAFTA nations for their work in opening up their economies and working this decision through their political process. More work needs to be done to change the necessary laws and regulations before the FTA is fully implemented, but the nations of the region deserve high credit for their work to date.
In many respects, DR-CAFTA exemplifies the broader hopes for the United States in the region. You are our neighbors and our trading partners. You are our friends. In contrast to Robert Frost's line that "good fences make good neighbors," we hope for fewer barriers and more collaboration.
The numbers are pretty impressive. The 21 countries and 3 territories represented by the CCAA add up to over 60 million people, with an economy of over $135 billion. Total U.S. trade with the CCAA economies topped $50 billion in 2004, more than U.S. trade with Australia, Brazil, or even France. More trade than that with Russia and all of the former Soviet Union - combined. More trade than that with all of Africa - combined.
And economic relations are bolstered by the ascendancy of democracy in the region. Some have more work to do, but the intellectual debate is over. We all seek political systems based on the consent of the majority, ones that respect human rights and allow for freedom of speech. It should be no surprise that a consensus has grown on both open markets and open political systems in recent years - both depend on a rule of law and the free flow of information. We should all take comfort in the degree to which these basic principles are universally accepted, with only one lone dictator left in our region.
We are related not only by political philosophy and by commerce, but also by a sense of kinship. There are 5 million Americans with familial ties to the Caribbean and Central America. They enrich our country and help to foster closer cultural relations.
So my starting point is one of optimism. The relationship is an important one. We have a lot going for us, but we face challenges as well
For example, there can be a communication challenge given the asymmetry in size and economy between the United States and the other nations of the region. Although the aggregate numbers of the region are impressive, when you start breaking it down by particular country, each economy carries less weight. It is sometimes difficult for the U.S. and the region to connect, when there is such a disparity in size between the two ends of the relationship.
More challenges exist in the transnational issues - how we deal with smuggling, immigration, and the quality of life concerns, such as social mobility, education, and health care. At the base of many of these problems is the economy. Because when the economy is performing, the societies have the tools to take care of their other problems.
This takes us back to trade and commerce. We should always remember that prosperity is a means, as well as an end. Our nations all seek a better material life, and we also know that a stronger economy will give us the means to tackle the other problems we face. In essence, trade is about creating opportunities, building better societies, and eliminating poverty.
I want to use my remarks today to try to touch on these points. Let me talk about both the challenge of FTAs and alternatives to FTAs.
The Challenge of Free Trade Agreements
It might seem a bit paradoxical to discuss challenges of FTAs, as we celebrate the successful passage of DR-CAFTA. My point is a simple one: FTAs are wonderful policy tools, but by themselves they are not likely to solve the problems. They simply give us an additional mechanism to solve the problems. They force countries to face inefficiencies and come to terms with them. But an FTA does not guarantee success in life; it still must be earned. FTAs open the door, but you still have to walk through the door.
So an FTA doesn't get you to the finish line, it just gets you to the starting line. If your trade infrastructure is deficient, removing tariffs and other barriers will not be particularly helpful. If your society is plagued by corruption or bureaucracy, removing trade barriers will not get you very far.
Transparent legal systems, government accountability, and companies that play by the rules are important for translating the opportunity of open markets into benefits for the region's residents.
Beyond corruption, there are the everyday questions: How many days does it take to register and open a new business in El Salvador? In Jamaica? I am not singling out these two countries, but I am trying to illustrate a point. How easy is it to hire and fire workers - because businesses are only likely to expand if they are also free to contract. What is the time or expense to move a container of cargo from your port to Miami? What can be done to make it faster, better, cheaper? The point is that all of us better benchmark these indicators because these are the factors that help determine the attractiveness of the business environment and eventually determine what type of investment takes place in our countries.
How long does it take to get a phone installed in your country or to get a credit card? How accessible is broadband Internet? How long does it take to clear immigration or customs? Can you do so without a bribe?
Let me issue a challenge to the countries in the room today. How can you make your country as attractive an economic locale as possible? How can your port and customs be more efficient? How can your phone service be better and cheaper? Does your tax code impede economic growth?
In a booming world economy, it is sometimes difficult to get U.S. companies to focus on what to them might be smaller markets. A U.S. company might be willing to struggle for several years in China to come to terms with a major project, because it views China as a strategic market. But the Caribbean and Central American countries are typically not strategic markets. If companies find impediments to doing business there, they will simply go elsewhere. These countries have to rely on their own wherewithal to succeed.
And I issue a challenge to the U.S. companies here today. I challenge you to think creatively about how to calibrate your activities in these countries proportional to return. Given the ranges in size and economic development, there is going to be a range of economic activity as well. A U.S. company cannot simply transplant its domestic operations, or its Japan operations, or even its Mexican operations, and make it work across Central America and the Caribbean. Its activities have to be specifically tailored to the market. The product slate, financing, marketing, assembly, and logistics will all have country-specific attributes.
Some might say that these markets are too small or too poor to merit much attention. But we can go to the smallest county in the United States, or the poorest county in the U.S., and we will still find a phone company, a bank, a grocery store, and so on. The point is that successful U.S. companies do not abandon markets because they are smaller or poorer than the strategic markets. The companies adjust accordingly.
So we each have our responsibilities. The countries need to make their markets as friendly as possible, and the companies need to develop architecture and an approach that allows them to enjoy success even with small volumes.
There is no magic wand we can wave. The path to a better society is taken step by step, improving the economy, attracting investment, helping business expand, making sure that workers can receive a better education, creating a better life for all.
The Problem With Alternatives to FTAs
We should pause for a moment and reflect on alternative models for reaching prosperity. Once in a while, a political leader will claim that there is a magic wand he can wave, and he puts forward proposals out of step with market economics, one in which foreign investment is not viewed as a help to society, but as a hindrance. One in which the businessperson is not part of the solution, but part of the problem.
Call it what you will - state intervention, industrial policy, protectionism, or socialism - this approach has failed every single time it has been attempted.
The simple truth, and for some an unpleasant truth, is that market economics is the only path to a better society.
As enduring as is the failure of socialism, so enduring is its appeal, at least to a segment of the population. Ironically, the historic proponents of socialism have all but abandoned this goal. You won't hear the British Labour party argue for more state control of the economy. You won't even hear it from the Chinese Communist party. But, you will at times hear it from populist politicians. And with a combination of class warfare, nationalism, and occasional anti-Americanism these politicians lead their countries down a destructive path.
You cannot claim to be helping the employees, while you are hurting the employers. You can't claim to be building a society up by tearing down different groups. And you can't claim to be bringing people together by preaching class hatred or an ugly nationalism.
I can understand resentment at economic problems we all face, but to deal with economic challenges we need investment, job creation, and entrepreneurs - not people throwing stones in the street. In fact, it is the quiet men and women engaged in everyday manufacturing, farming, teaching, and sales, who are bringing together societies, nations, and the hemisphere, by helping goods and services move across borders.
Conclusion and the Road Ahead
This takes us back to the implementation of DR-CAFTA, on which people across the region are quietly working to adapt their laws and regulations. We are working with them to make sure we have a gold standard FTA.
Allow me to close my remarks with a theme on which I opened. I began by noting that the relationship was in many respects asymmetrical. Although there may be an asymmetry of condition, that misses the point. The point is not equivalence of condition or of economic weight. The point is that countries of different sizes and levels of development still work together in an atmosphere of respect. We have a symmetry of values. A symmetry of purpose. A symmetry of dignity and of ultimate goals. And in that journey toward our goals of peace and prosperity, ladies and gentlemen, it is my great honor to work with you.
Thank you, and I would be delighted to take your questions.
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