Madam Chair, I am pleased to appear before this subcommittee to discuss our commercial relationship with Latin America and the opportunities it presents for U.S. firms. I would like to congratulate the subcommittee for its continued focus on the region, as evidenced by this, your second hearing in less than seven months involving the Administration's views on Latin America. Your timing is impeccable as we have recently witnessed two landmark events in South America's history. The first was one of historical importance: Brazil's celebration of its discovery on April 22, 1500, by Pedro Alvares Cabral. The second, which occurred less than a week ago, is one that we trust will also in time be viewed as a seminal event in the region's history: Congressional passage of the Conference Report to the Trade and Development Act of 2000, which includes Administration supported provisions enhancing the Caribbean Basin Initiative.
Obviously much has changed since Cabral's visit. Much too has changed since our Department last appeared before this subcommittee. Let me begin with a brief overview of our trade situation with Latin America.
TRADE SNAPSHOT
The Western Hemisphere is a major trade and investment partner for the United States. It is a natural commercial partner, closely tied to us by geography, history and culture. Today, it accounts for one out of every five dollars in U.S. merchandise exports, up dramatically from under 14 percent at the beginning of 1990. In fact, the Western Hemisphere has been responsible for almost half of all U.S. export growth since 1995.
But beginning in late 1998, the global financial crisis and lower commodity prices had a dampening effect on economic growth in Latin America. In 1999, Hurricanes Georges and Mitch took their toll in the Caribbean and Central America. While Latin America's economies collectively grew almost 5 percent in 1997, 1998's growth was less than 2 percent, and 1999's was negligible. This region-wide downturn, coupled with significant currency devaluations in several markets, most notably an almost 40 percent devaluation in the Brazilian real against the U.S. dollar, both lessened the demand for U.S. exports and increased their cost relative to domestically produced goods.
That slowdown was clearly visible in our trade performance. Excluding Mexico, 1998 marked the first time since 1986 that our total trade with Latin America declined, with our exports to the region flat and imports falling. It worsened again in 1999, placing our trade balance with the region in deficit for the first time since 1991. For the year, U.S. exports to Brazil declined more than 12 percent, Argentina 16 percent, Chile 22 percent, and virtually all other countries within the region showed a reversal from recent double-digit export growth. Our balance-of-trade fell from a $13 billion surplus in 1998 to a $3.2 billion deficit in 1999.
Fortunately, recent reports indicate that the South American downturn may be over, with growth returning to many of the countries this year.
ECONOMIC OVERVIEW
The Southern Cone
Commerce Secretary William Daley's February 2000 Business Development Mission to Uruguay, Brazil, Argentina and Chile was undertaken with an eye toward the emerging economic recovery in the Southern Cone. The Secretary and 17 senior level executives representing a variety of industry sectors, including pharmaceuticals, telecommunications, information technologies, energy and environmental technologies, spent a week in the Southern Cone meeting with officials and business persons in Montevideo, Brasilia, Sao Paulo, Buenos Aires, Cordoba and Santiago.
Already Brazil has shown signs of a more rapid than expected recovery following its January 1999 devaluation. In fact, the recovery has come about so quickly that, in early April, Brazilian officials stated their intention to pay off all IMF emergency loans, granted in November 1998, before their due date.
Positive Brazilian growth should have a salutary effect, both on overall regional economic prospects and on U.S. exports and investment. Brazil, after all, is the largest economy in Latin America, the 9th largest in the world and our largest South American trading partner. Its gross national product is nearly equal to that of the rest of South America combined. It is also a key market for other South American nations. Indeed, Argentina, the second largest South American economy, sends roughly 30 percent of its exports to Brazil.
A decade of fiscal, trade and political reform paid dividends as the Asian crisis, unlike Mexico's 1995 devaluation, roiled, but failed to overwhelm the Brazilian economy. Quick, decisive action on the part of the Brazilian Government and Central Bank limited the damage. As a result, investor confidence returned seemingly overnight. A record $30 billion in foreign direct investment (FDI) entered Brazil during 1999, making it the third largest recipient in the world of FDI during the year, behind only the United States and United Kingdom.
Brazilian exports are up almost 22 percent in the first two months of 2000, compared with January-February 1999. Imports have risen 11.5 percent. Interest rates remain high, but they are far lower than the levels seen last fall and winter. Most observers predict that growth will be in the neighborhood of 3.0 - 3.5 percent this year.
The continuing recovery in Asia should provide an additional impetus for growth in other Southern Cone countries - most notably Chile. Mired in a recession for much of the past year caused by declining world prices for its primary export commodity -- copper -- and the contraction of Asian markets which account for almost 30 percent of its exports, Chile appears to have weathered the worst of its economic storm. Business confidence is returning and the longer term outlook for Chile's economy is positive. Export commodity prices are recovering, and after a year of negative one percent growth in 1999, the government of Chile expects a rebound to 5.5 percent growth in 2000.
Argentina is also beginning to show signs of growth following a drop in GDP in 1999 of about 3 percent. Exports to Brazil, Argentina's largest market, increased by almost 9 percent during the first two months of 2000, compared with the same period in 1999. Although other economic data for the first two months of 2000 give a conflicting view, most analysts agree that trends are moving in the right direction. Growth forecasts for the year are in the 3 percent range.
The Andean Community
As we mentioned during our testimony before this committee last September, the ongoing turmoil in the Andean community is a continuing cause for concern. Uncertainty in Venezuela, Colombia and Ecuador has exacerbated the downward trend in U.S. exports to the region -- down by 23.5 percent in 1999 and by 11 percent in the first month of this year -- and caused a major decline in new investments. Peru and Bolivia have emerged as the economic bright spots in the Andean region.
In Venezuela voters have given President Chavez a mandate for sweeping changes, including approval of a new constitution to reform the political structure of the state and the judiciary. On May 28, 2000, elections will be held pursuant to the new constitution to elect a president and new congress. President Chavez is a candidate in that election and his political and economic policies have been at the center of the presidential campaign. The U.S. business community is concerned with the many new laws and decrees needed to implement the new constitution. As a result, many foreign companies' investment plans are on hold until the government implements a creditable economic recovery plan and a clear investment regime.
Colombia is also going through a difficult period of political and economic turmoil. Domestic insurgency and narcotics trafficking remain serious problems. The situation is made more uncertain by the fact that Colombia is only recently starting to recover from its worst economic recession in decades, with unemployment over 20 percent and GDP growth projected to be under 3 percent for 2000. President Pastrana of Colombia has embarked on a comprehensive strategy called "Plan Colombia" to resolve the country's most pressing national challenges, and is seeking U.S. government support.
Ecuador is the third very troubled country in the Andean region. Ecuador's economic performance started to decline in 1998 following a drop in oil prices and the after effects of the El Niño weather phenomenon. In 1999, Ecuador's economy shrank by 7 percent, inflation was over 60 percent, unemployment was running at 17 percent and Ecuador's per capita debt load was the heaviest in Latin America. A $2 billion IMF standby agreement for Ecuador should support Ecuador's dollarization program and help the country begin to recover from its worse economic recession in 70 years.
But in spite of these uncertainties, GDP is forecast to grow from a low of 2 percent in Ecuador to a high of 4 percent in Peru, although the controversy over President Fujimori's re-election has the potential to harm economic growth this year.
Central America and the Caribbean
A year after the devastation caused by Hurricane Mitch, the Central American countries continue to work toward the reconstruction and transformation of their economies. The economic impact of Hurricane Mitch was enormous, placing significant economic, social, and political pressures on the region's governments. Honduras and Nicaragua -- the countries hardest hit -- sustained damages equal to nearly two-thirds of their gross domestic products.
Yet, we are now seeing signs of recovery. For example, the Honduran economy at the end of 1999 performed better than predicted. While still negative, real GDP growth was - 1.9 percent at year's end, inflation was reduced and net international reserves rose.
Continued reconstruction efforts with the assistance of the United States, other Paris Club members and the multilateral development banks (MDBs), will go a long way toward the region's economic re-activization. We in the International Trade Administration have been very active in this endeavor, with activities ranging from a Business Mission to the region led by then Under Secretary for International Trade David Aaron, to a new web-site for our Trade Information Center highlighting export opportunities, and a December 1999 program which promoted the private sector's role in disaster mitigation efforts. We also have several programs planned for this summer, working with the U.S. insurance, forestry and paper products, and environmental exports sectors.
A revitalized Central America can play an important role in enhancing U.S. exports to Latin America. The Central American countries have made significant progress over the past decade in strengthening democracy and liberalizing their economies. Trade liberalization, macroeconomic stabilization, and the introduction of private investment in previously state-owned enterprises resulted in the emergence of the United States as Central America's most important trading partner and its largest foreign investor. In 1999, U.S. trade with Central America (specifically Belize, Costa Rica, El Salvador, Guatemala, Honduras, and Nicaragua) totaled over $20 billion, more than tripling since 1990.
Real GDP growth is forecast to occur throughout the region in the current year, with projections ranging from a low of 1.5 percent for Honduras to a high in the neighborhood of 5.5 percent for Costa Rica.
In the Caribbean, we look for generally moderate growth, although the Dominican Republic should turn in another outstanding year with an expected growth rate in excess of five percent. There also seems to be a recognition within the Dominican Republic that sound economic policies are the keys to growth and development and few private sector observers foresee any dramatic changes in policy, regardless of who wins the upcoming elections.
The political situation in Haiti is much more volatile and, as a result, the short-term economic prospects are not good. Until the elections are held, and until the new government begins to make the necessary decisions to get the economy moving again, I am afraid that Haiti will continue to languish.
Enactment of the CBI enhancement legislation, along with infrastructure development and recovery projects, should act as a stimulus for U.S. firms looking to move into the Caribbean area. For 15 years, CBI has been fundamental to growth, economic diversification and strengthening trade ties with Central America and the Caribbean island nations. It has helped open markets in the region for $19 billion in U.S. exports.
In particular, this legislation will strengthen the partnerships that exist between the U.S. and Caribbean Basin firms in the textile and apparel sector. It would also improve the competitiveness of apparel assemblers from the Caribbean and Central America vis-à-vis assembly operations in other parts of the world that do not use U.S. fabric and other inputs to the
same extent.
I might note that many firms already find this an attractive market: two way trade with the region last year amounted to over $40 billion, larger than our two-way trade with either the Andean Community or the Mercosur countries.
Mexico
Mexico presents an interesting case: Latin American by history and culture, but increasingly North American by reason of economics and trade.
January 1, 2000, marked the sixth full year since NAFTA took effect and it has significantly contributed to our trade relations with Mexico. Even with the severe downturn in the Mexican economy in 1995, the NAFTA has kept the Mexican market open to the United States, preventing loss of U.S. exports and jobs. Due in part to the NAFTA, Mexico's economy recovered quickly from the 1995 recession with real GDP growing by 5.2 percent in 1996, 4.7 percent in 1998, and 3.4 percent in 1999. Inflation, which reached 52 percent in 1995, dropped to less than 13 percent (12.3 percent) in 1999.
In the latter part of 1998, several factors, including the global financial uncertainty in international capital markets, the sudden plunge in oil prices and an increased absorption of Asian goods, caused growth to slow in Mexico, just as they contributed to the volatility of the peso-dollar exchange rate, with the peso depreciating relative to the U.S. dollar by approximately 22 percent. This slowdown contributed to a significant decline in investment and consumption growth associated with increased interest rates. In the face of pressures on public finances due to the sharp decline in oil prices, the depreciation of the peso, and a rising inflation rate, the Mexican Central Bank tightened monetary policy.
Since that time, Mexico's economy has rebounded nicely. Recent figures show that the peso has appreciated, current inflation projected for 2000 is down from 1998's figure of 18.5 percent to approximately 10 percent (annualized), and trade and investment in Mexico are growing. Since 1994, Mexico has received over $70 billion in foreign direct investment (FDI). With the recent signing of the EU-Mexico Free Trade Agreement, it is expected that these figures will continue to rise.
Mexico is currently our third largest trading partner with approximately $196.5 billion in total (two-way) goods trade in 1999. Mexico is our second largest goods export market ($86.8 billion in 1999) and our third largest source for goods imports ($109.7 billion in 1999). During the NAFTA's first six years (between 1993 and 1999), U.S.-Mexico two-way trade has more than doubled (241 percent), growing an average of approximately 16 percent annually. For the first two months of 2000, U.S. exports to Mexico are already up 35 percent when compared to the same time period in 1999 and are outpacing import growth.
Our trade relations are not only knocking down barriers to commerce and trade between our countries, but are also creating opportunities for workers and entrepreneurs, encouraging environmental protection and worker rights and building a stronger, more cooperative partnership. Mexico has achieved a relative state of macroeconomic stability and has extensively reformed its economy. NAFTA has helped to push Mexico toward pursuing market opening strategies, deregulating and privatizing. Mexico's economy has been doing well, and forecasts are positive for the country's future.
OPPORTUNITIES
Opportunities for U.S. firms are returning following a poor 1999 economic performance in much of South America. In particular, a return to growth in the Southern Cone, coupled with continued strength in Mexico, point to increased U.S. exports and investment within the Latin American region. Continuing expansion of e-commerce and the Internet in Latin America hold promise for many U.S. companies. And, progress in the Free Trade Area of the Americas (FTAA), particularly with respect to business facilitation issues, should make the costs of doing business in the region less onerous.
E-Commerce/Internet
Latin America is poised for impressive growth in the e-commerce sector over the next several years. This potential for growth was a major focus during Secretary Daley's Business Development Mission to Latin America. During the trip, Secretary Daley signed a Statement of Intent on e-commerce with the Government of Argentina, and a Joint Statement on e-commerce with Chile - the first such joint statement to be signed between the United States and any South American country.
The number of Latin Americans using the Internet is expected to grow rapidly from a current figure of 9 million users to a predicted 38 million by 2003, according to a November 1999 study. The majority of these users will be concentrated in Brazil, Argentina and Mexico. Accordingly, the domestic online retail market is predicted to grow from approximately $170 million in 1998 to as much as $82 billion by 2004. Business-to-business e-commerce growth is predicted to account for approximately 93 percent of that total, or $76 billion.
Despite these encouraging predictions the growth of e-commerce in Latin America is being hampered by high Internet access costs and consumer uncertainty. High telephone rates in most countries make the use of dial-up Internet connections prohibitively expensive for many people. In addition, throughout most of Latin America, banks and users have not yet worked out a readily available, reliable system for electronic payments, which is a critical component in expanding consumer e-commerce transactions.
The potential dividends of e-commerce could be especially high for the region's smaller companies and smaller economies which traditionally have been hampered by limited information, high market entry costs and distance from major markets.
Brazil remains the dominant force in the e-commerce market in Latin America with 3.5 million of the 9 million Internet users in the region. Current projections indicate that there will be five million subscribers by 2002.
The leading edge in Brazil is the banking sector. Brazilian banks have been at the forefront of finding alternative means of payment to credit cards through electronic wallets and Internet-only credit. Brazil's sophisticated electronic banking sector should ensure that it stays on the cutting edge in the development of secure e-commerce technology, and maintains the most dynamic e-commerce market in the region. Some analysts predict upward of $64 billion in online trade in Brazil by 2004.
Free Trade Area of the Americas (FTAA)
At their November 1999 meeting in Toronto, FTAA Trade Ministers adopted an initial package of ten transparency and eight customs business facilitation measures. Countries agreed to implement the transparency measures immediately and the customs measures by April 2001. These initiatives obligate our trading partners to make information about their commercial regulations and procedures available to the trading community; adopt streamlined entry procedures for express shipments, low-value consignments and goods related to business travel; and apply sophisticated risk management systems to enforcement activities on high-risk goods and travelers while facilitating the clearance of low-risk merchandise - all things the United States already does.
We are working closely with our counterparts in the region to coordinate technical assistance and complete the implementation process as soon as possible. Business facilitation measures offer common sense solutions to real-world trade problems as the following examples demonstrate:
And best of all, these business facilitation measure can be implemented quickly - often with little more than procedural or regulatory changes.
As FTAA member countries work to put existing business facilitation measures in place, they are also considering a second round of market-opening initiatives. In close cooperation with our business community, the United States has already prepared and submitted 19 proposed business facilitation measures in the areas of services, telecommunications, intellectual property rights, e-commerce, investment, government procurement, anti-corruption, customs and market access. We expect hemispheric trade ministers to agree on a final package at their next meeting in April 2001.
While some countries, notably Brazil, have voiced doubts about the priority they are placing on these negotiations, it is significant that this is a negotiating arena in which real actions are being taken - like the agreement to move express shipments through customs in six hours - and where real negotiating texts are being tabled. Since January, negotiating groups have each held one meeting to develop work plans and schedules to produce draft text by the end of the year for Vice Ministers to compile in advance of the FTAA Ministerial in April 2001.
CURRENT CHALLENGES
Momentum for Continued Trade Liberalization
Latin Americans, by and large, tend to believe that the U.S. does not fully support trade liberalization. They cite the continuing lack of fast track negotiating authority, our aggressive use of antidumping and countervailing duty regulations, and, until recently, our inability to pass CBI enhancement legislation. The situation in Seattle was, to many, further proof of the American public's lack of enthusiasm for liberalized trade.
The question for us is how do we combat this mistaken perception and move forward with an ambitious trade agenda?
Earlier this month, we went a long way toward dispelling this myth. Congressional passage of the Conference Report to the Trade and Development Act of 2000 should reassure our hemispheric partners that the United States remains steadfast in its desire for closer economic relations with the hemisphere, and is fully committed to liberalizing trade. We view the bills as a reaffirmation to our commitment to a Free Trade Area for the Americas by 2005, and our desire to ensure that our Caribbean partners are well positioned to take advantage of that agreement.
It is now time to move forward on the other outstanding trade fronts - negotiating a new WTO round and the FTAA.
With respect to the WTO, the President is committed to launching negotiations this year. This will be difficult, but if Members show flexibility it can be done. We share the view of many Latin Americans on the need for a manageable agenda and a limited, three-year timetable for negotiations.
The new round must include bringing down barriers in agriculture, a sector where we share a convergence of views with our Latin American neighbors; manufacturing and services; keeping e-commerce duty-free; and, ensuring that trade will improve living conditions for working people everywhere while protecting the environment. In addition, the WTO must be more transparent and accessible to all citizens around the world.
We have demonstrated that we are willing to develop a meaningful effort to address implementation issues surrounding other agreements. The focus needs to be on ensuring that these agreements are fully implemented, not on renegotiation of existing agreements.
With the FTAA, we have already worked to achieve consensus on business facilitation items that should enhance opportunities for companies throughout the hemisphere. Aggressively pursuing a second round of business facilitation will work to demonstrate our continuing commitment to liberalizing trade.
Similarly, through the FTAA Joint Public-Private Sector Experts Committee on Electronic Commerce -- chaired on the United States side by the Commerce Department -- we are increasing the hemisphere's knowledge about the kinds of policies that promote electronic commerce and the potential benefits of electronic commerce. For this potential to be realized, governments must adopt a market-oriented approach to electronic commerce, one that facilitates the emergence of a global, transparent, and predictable environment which will support business and commerce.
The Joint Committee's initial report contained 40 recommendations, urging FTAA governments to update their regulatory frameworks to provide for greater private sector competition; encourage international voluntary and consensus-based standards setting; take the enabling provisions of UNCITRAL's Model Law into account when removing legal barriers to the recognition of electronic records and transactions; promote technology neutrality; encourage effective self-regulation; and provide effective on-line consumer protection no less than that afforded in traditional transactions.
Increasing Competition
A key challenge we face is the significant increase in competition that U.S. products face both from within and outside the hemisphere. Latin American and Caribbean nations, strongly encouraged by the United States, have moved beyond their traditional closed markets to embrace greater market openness and increased competition. We encouraged these changes because they contribute to greater economic growth, expand market opportunities, reinforce economic reform, and buttress the emerging democratization of the region.
And the number of regional and subregional trade arrangements has proliferated within the region without U.S. participation. Chile, for example, either has or is negotiating trade agreements with every democratic nation in the Western Hemisphere except the United States, and is now even negotiating with Korea and exploring opportunities with Japan.
As a result, outside of our NAFTA partners we are struggling to maintain our share of the hemisphere's purchases, as U.S. exporters find themselves competing against firms located within the region that enjoy preferential tariffs that we do not. For example, in 1997, the American Chamber of Commerce in Chile identified more than one-half billion dollars in lost U.S. sales -- these were specific instances -- to firms situated in countries that had preferential trade agreements with Chile.
In addition, the European Union -- historically our strongest competitor in Latin America and especially in Mercosur -- is refocusing its attention on the region. Having watched the United States realize a seven point gain in import market share with Mexico in the 1990s -- largely at the EU's expense -- the European Union concluded a free trade agreement with Mexico on November 24, 1999, which adherents claim covers approximately 95 percent of bilateral trade.
The agreement, which is expected to enter into force in July 2000 and be fully implemented in 2010, is comprised of 11 chapters ranging from market access for industrial products to dispute settlement. It significantly opens the industrial sector, but limits the opening of the agricultural sector by carving out sensitive products such as heavily subsidized EU-origin sugar, meat, grain and dairy products. A review to further consider liberalization of these products will be undertaken on a case-by-case basis in three years.
The European Union views the agreement as a means to reverse its declining market share in Mexico following NAFTA and as vehicle to increase investment opportunities. The EU was clearly seeking NAFTA parity, and an initial analysis performed by the Department's Market Access and Compliance (MAC) staff indicates that it was successful in many regards, such as gaining duty-free access to Mexico's industrial market in seven years. In contrast, Mexico was able to make instrumental strides in gaining access to the EU's agricultural market over a ten-year period. The Mexican Agricultural Council estimates that as a result of the deal Mexico will be able to export up to $870 million annually in agricultural goods, more than 10 times current agricultural exports.
A second key EU objective on the trade front in Latin America is to achieve at least parity with the FTAA, thereby maintaining its position as Mercosur's number one supplier. Between 1990 and 1998, the EU's market share of all Mercosur imports increased from 23 to 27 percent. It is not prepared to sit by and watch the United States gain market share via the FTAA at its expense. It is with this in mind that the EU has recently intensified negotiations with Mercosur toward consolidating the two regional blocs.
In 1995, Mercosur signed an agreement with the EU to establish the model for negotiation of a trade pact. June 28-29, 1999, Brazilian President Fernando Henrique Cardoso hosted a summit meeting in Rio de Janeiro bringing together for the first time heads of state and government from the EU, Latin America and the Caribbean. After ministerial-level meetings in November 1999 and February 2000, free trade negotiations between the EU and Mercosur were officially launched April 6 in Buenos Aires. EU-Chile negotiations, which will parallel the EU-Mercosur talks, were launched April 10.
Nevertheless, formal negotiations on tariff issues and services are not scheduled to begin until at least July 2001, and no deadline has been set for their conclusion. Many observers expect the EU's resistance to agricultural liberalization to be the stumbling block in these talks.
As has been true in the case of the EU-Mexico agreement, the Department's MAC staff will be vigilant to make sure that any agreements struck strictly comply with the WTO criteria of covering substantially all trade and raising no new barriers to third parties.
Market Access
Despite the enormous progress that has taken place in the region over the past decade, market access issues affecting the competitive potential of U.S. firms continue to arise. Several were highlighted in this month's Super and Special 301 reports, both of which relied upon substantive input from the International Trade Administration in determining a recommended course of action.
The use of reference prices to determine the value of goods for customs purposes is one market access barrier that has surfaced with more frequency over the past year. It is a particularly pernicious practice, given the fact that it fosters uncertainty among exporters as it is often applied in an arbitrary and non-transparent manner.
The Administration has announced its intention to request WTO consultations regarding Brazil's use of minimum reference prices both as a requirement to obtain import licenses and/or as a base requirement for determining value for calculating duties. In practice, this system works to prohibit the import of products with declared values below established minimum prices, and, as such, appears to violate provisions of the WTO Agreement on Customs Valuation, GATT 1994, and the WTO Agreement on Import Licensing Procedures.
In a second case, the United States requested bilateral consultations with Mexico regarding that country's use of reference prices for a wide range of imported products. Based on currently available information, effective June 1, 2000, companies importing products that fall below the Government's minimum reference price must deposit cash in a designated Mexican financial institution (or arrange one of two alternative guarantees) to cover the difference in duties and taxes. This cash deposit requirement appears to violate a number of WTO agreements. Mexico was put on notice that if consultations do not resolve this issue in a timely manner, the United States will initiate WTO consultations.
One of the Administration's key commercial concerns is the need for most countries in the Latin American region to reform their intellectual property rights legislation and enforcement regimes. Patent, trademark, trade secret and copyright enforcement regimes which fail to meet TRIPs standards are areas of particular concern.
Argentina has been particularly troublesome in this area. Last year we initiated a WTO dispute settlement case against Argentina's failure to grant exclusive marketing rights to eligible U.S. products as required by TRIPs. In the May 1 Special 301 announcement we augmented our earlier case by adding a host of additional violations ranging from failure to protect confidential test data submitted to government regulatory authorities for pharmaceuticals and agricultural chemicals to the denial of certain exclusive rights for patents, such as the protection of goods produced by patented processes and the right of importation.
Brazil, on the other hand, has made significant strides in meeting TRIPs requirements, with some important exceptions. One of these exceptions, Brazil's requirement for "local working" as a part of its patent law, was cited in the Special 301 report.
Brazil's patent law imposes a "local working" requirement as a condition for enjoyment of exclusive patent rights. This requirement can only be satisfied by local production, and not importation, of the patented product. This appears to be inconsistent with Brazil's obligations under Article 27 of the WTO TRIPs Agreement, which requires that patent rights be "enjoyable without discrimination as to . . . whether products are imported or locally produced." Brazil has stated repeatedly that it disagrees with this interpretation of the TRIPs Agreement. In order to resolve this longstanding difference in views over this issue, as well as to address the concern that other countries may cite the Brazilian "local working" requirement as a justification for proposing similar legislation, we announced our intention to request WTO consultations with Brazil to pursue this single-issue case.
We will continue to work cooperatively with countries of the region to promote higher levels of intellectual property protection. This objective is in our mutual interest. Strong protection for intellectual property not only enhances the business and investment climate and increases access to high technology goods and services, but by spurring innovation, is fundamental to economic development and international competitiveness. In the digital age, protection for intellectual property is key to the growth of electronic commerce, an issue of importance to the United States, Latin American countries and the Caribbean.
Corruption
Corruption is a persistent problem in many Latin American countries. Transparency International, a non-governmental organization based in Berlin, listed a number of Latin American countries in its 1999 Corruption Perceptions Index, a survey of international business perceptions of corruption in selected countries. Chile, Costa Rica, Uruguay, Brazil and El Salvador fell in the top 50th percentile (i.e., corruption is a lesser problem relative to other countries). Mexico, Argentina, Colombia and Venezuela, to name a few, ranked at the lower end of the spectrum. In way of comparison, I will note that Denmark was considered the least corrupt and the United States ranked 18th, one spot above Chile.
This administration has placed a high priority on combating corruption around the world. Corruption, and bribery in particular, is a major problem in international business transactions. This year's Trade Promotion Coordinating Committee (TPCC) report states that for the period from mid-1994 through April 1999, we have learned of significant allegations of bribery by foreign firms in 294 international contract competitions valued at $145 billion. The practice is global in scope. Latin America (after Asia) had the second highest incidence of alleged bribery occurrences in international business transactions (although the value of the Latin American deals is much lower than that of deals in other parts of the world).
We have been urging our southern neighbors to take steps to improve and enforce their anticorruption laws, embrace good governance principles and adopt transparency measures. Already, 26 Organization of American States (OAS) member countries have signed the Inter-American Convention Against Corruption, and 18 countries have ratified it. (The United States signed the OAS Convention on June 2, 1996. President Clinton transmitted the Convention to the Senate on April 1, 1998.) The OAS Convention obligates parties to criminalize bribery of domestic and foreign officials, and also addresses other corruption issues such as the improper use of property by government officials, the diversion of state property, transparency and accountability in government, and ethical standards for government officials.
Also, Argentina, Brazil, Chile and Mexico are signatories to the Organization for Economic Cooperation and Development (OECD) Anti-Bribery Convention, which entered into force in February 1999. In fact, Mexico has already ratified the OECD Convention and enacted implementing legislation. The OECD Convention is a historic achievement in the fight against bribery. Under the Convention, all 34 signatories will criminalize the bribery of foreign officials.
To their credit, many Latin American countries have taken additional action to combat this problem. For example, in Argentina, the new Administration of Fernando de la Rua has taken decisive action to combat corruption, including a crackdown on tax evasion, the creation of an Anti-Corruption Bureau, a series of high-profile investigations into allegations of wrongdoing by former federal officials and new rules requiring government officials to publish more details concerning discretionary expenditures.
ITA'S ROLE
The International Trade Administration plays a number of critical roles in promoting U.S. opportunities with the Latin American market, ranging from export promotion, to trade policy implementation, to enforcing our unfair trade laws.
An increasingly critical function that we in the International Trade Administration provide is ensuring that foreign governments comply with those trade agreements to which they are a signatory. We work diligently to assure Americans that the agreements we negotiate are honored and that American firms and workers obtain the benefits and opportunities intended. It is also one of the best ways to help create confidence among business, labor, and the general public that trade agreements work and create new business and employment opportunities. Hence, trade agreements compliance and enforcing our trade laws are a priority throughout the International Trade Administration in the Commerce Department. Our Trade Compliance Center coordinates our compliance activities, but all of our country market access officers, our industry experts, as well as our Commercial Service officers overseas, are involved.
We have tailored much of our work to smaller companies, because they lack the time and resources to deal with foreign governments -- or our own government -- on trade barriers. This is a critical function with respect to ITA's monitoring of regional trade agreements. We want to ensure that future preferential trade agreements, either wholly within the region or with third parties (e.g., the EU - Mexico or EU - MERCOSUR), are negotiated in a manner that does not raise barriers to U.S. exports.
Indeed, it is a vital feature of our day-to-day operations.
CONCLUSION
In conclusion, the year 2000 appears to be a year marked by growing opportunities, coupled with continuing challenges. I believe that during the year we will make progress to surmount several of these challenges as economic growth returns to the region, followed by an expected upswing in U.S. exports as we move closer toward the successful completion of the FTAA.
Thank you and I will be pleased to answer any questions.