ADDRESS BY EU-LAC FOUNDATION PRESIDENT BENITA FERRERO-WALDNER AT THE CONFERENCE Industrial Policies of the 21th Century Dialogue Between

n Latin America and the World. Rio de Janeiro, 10 May 2012

PLEASE CHECK AGAINST DELIVERY UNICAMENTE SER AUTNTICA LA VERSIN PRONUNCIADA Prezados amigos, Dear co-speakers of this panel and country-representatives, Senhoras e senhores, Ladies and Gentlemen, uma grata satisfao poder voltar ao Rio de Janeiro em nome da Fundao Unio Europia Amrica Latina e Caribe para participar desta conferncia. I am delighted to contribute to this timely dialogue on Industrial Policies for the 21 Century and the specific topic Industrial policies and structural change. Thank you very much for the invitation. Allow me to build my contribution around the following issues, which I consider highly pertinent in the light of todays conference. The global financial crisis and the challenges Europe and Latin America and the Caribbean face for sustainable development. Industrial policies, competitiveness, the importance of small and medium size enterprises, and regional integration, and The added value of the new European Union-Latin America and Caribbean Foundation (EU-LAC Foundation) Ladies and gentlemen, We are currently going through a sustained period of financial and economic turmoil on a global scale and Europe at its very heart. But this crisis affects all economies, even if of course in different ways. The dilemma to assure financial stability and improve economic governance without damaging prospects for much needed growth and job creation I our continent contrasts with the overall dynamism of Latin America and the Caribbean, as outlined in the Global Competitiveness Report 2011-2012, published by the World Economic Forum.

From a regional perspective, Latin American and Caribbean economies have performed well showing a widely acknowledged degree of resilience. The Region as a whole succeeded to overcome successfully the economic and financial crisis and experienced sustained levels of growth and job creation since 2009: In average 6% growth in 2010, a projected 4,25% in 2011 and of 4.25% for 2012. And there are other positive indicators, such as an increase in exports of 23 per cent during 2011 and a reduction of the unemployment rate from 7.3 per cent in 2010 to an anticipated rate between 6.6 and 6.8 per cent in 2012. Meanwhile, the unemployment rate in the euro zone has hit a historic record of 10.9 percent as recession is spreading across Europe, with some countries being especially exposed. Are we witnessing the Latin American Decade, as the Director of the Interamerican Development Bank, Alberto Moreno said versus a potential lost decade for Europe as IMF Managing Director, Christine Lagarde warned not too long ago? I would like to emphasize that in spite of obvious differences and stages of development in and notably also within our regions, international policy makers do face a series of similar challenges. And more importantly, in the multi-polar world we live in, no country can tackle these challenges alone. Our governments all strive for growth, sustainable development and job creation. This may result in different policy options, but I could not agree more with what EU Commissioner for Trade, Karel de Gucht recently said: We need to recommit to policies of productivity, growth and economic integration within our own regions and in our relationship with each other. The favourable situation in the Latin American region can be attributed to inherent factors of competitiveness: sound macroeconomic management in the monetary and fiscal fields, improved education and health, but also to external factors such as the sustained demand of primary goods from China as well as the progressive recovery of the demand in the US. The Global Competitive Index shows that some countries of the LAC region experienced significant advances, for example Chile, Barbados, Panama, Brazil (with the 53rd place), Mexico not far behind, Costa Rica etc. On the other hand, the deterioration o the security situation in parts of Central America translated into a considerable loss of competitiveness in those countries. Indeed, the LAC Region will need to continue tackling a series of challenges to achieve further growth and prosperity, such as: weak development of infrastructures or the gap in innovation with more developed economies. Whereas the economic growth of LAC countries linked to its relations with China are based mainly in primary good exports and processes of low technological investment, what would be necessary in the future is the promotion of a transition towards a generation and consolidation of competitive advantages based on development of knowledge, technology and innovation as essential elements towards a significant growth of productivity in the region. Achievements in institutional and public policies, particularly in the economic field, enhance the possibilities to transform the situation towards more dynamism, growth and productivity of the region. For example, progressive process of technological modernisation

and benefiting the value chain in the agro industrial production in Argentina, Brazil, Chile and Uruguay. There is also clear evidence that the vertical integration in the value-chain in minerals augmented times in the last 30 years. For all, the principal challenge for the LAC region is how to profit of the growing opportunities created by its increasing integration in the global markets, or more concretely, how to spur productivity, growth and competitiveness linked to international trade. Today the most effective way to improve the standard of living of the population of the region is to enhance the competitiveness of its services. Services occupy a major part of employees, and the competitiveness of the industrial sector, depends on good transports and communication services. Services seem to have a major potential to increase productivity and in turn create more growth. For me, the major factors that have to be clearly tackled are education and the here also vocational training, and more technology and innovation. Cooperation between the EU-LAC is not a choice but a necessity. It depends on us, though, to mould the terms of this cooperation and make the most out of it. This also means that for all economies including Europe and Latin American and Caribbean - prosperity will at least partly depend on the degree of economic integration that a country is able to achieve. Over time, the objective for economies is to become cost-efficient in those parts of the value chain that add the most value. Allow me to adopt a view on the European Union that goes beyond the dominant discussion on the debt crisis and its implications. The EU remains a tremendously successful experience in terms of peace, solidarity, progress and wellbeing; an experience much admired throughout the whole world even though it cannot be a blueprint. This has been achieved through progressive regional integration. In my view, the European debt crisis is the best evidence that we need more Europe not less. By now, we all know that a monetary union without a financial and fiscal union cannot work. Today, the European dilemma is to find the right balance and a healthy policy mix between austerity and sustainable public finances on the one hand, and higher growth rates to create jobs and wealth. Here, coherent and coordinated industrial policies for reinforced competitiveness are key. The main drivers of strong economic growth are competitive firms of all sizes. These firms require an environment that favours new ideas and new businesses. The European Commission has identified six areas to make significant progress towards the Europe 2020 goals, Europes growth strategy for the next decade. These are: Structural changes in the economy, The innovativeness of industries, Sustainability and resource efficiency,

Business environment, The single market, and Small and medium size enterprises. If the EU wants to be competitive in the global economy, we need education and vocational training to promote a model of production based on technology and research. This requires innovation and seizing the potential of renewable energies, for example. Ladies and Gentlemen, As for Latin America and the Caribbean, in spite of the promising indicators I referred to earlier there are also considerable challenges. And one painful lesson, we European are learning right now is that prevention is always better and cheaper than cure. Brazil has performed very well in this regard. However, much of the economic growth the region has seen since the 1990s is linked to the success of commodity exports with high prices due to increased demand from emerging economies, whether they be food, metals or fuel. Lastly, Latin American countries export much less to their neighbours than do their counterparts in other continents, partly because of large distances. But trade is also checked by higher tariffs, hold-ups at customs, a tangled skein of separate trade agreements and poor transport links. Regional integration is key to combat the risk of deindustrialisation, boost intra-regional trade and foster development across Latin American and the Caribbean. In the medium- and longer term protectionism and high trade barriers do not pay off. Senhoras e senhores, I have deliberately put the emphasis on quality investment, as this is one of the areas where the bi-regional partnership between the European Union and Latin America can generate real added value. It makes a lot of sense that our regions agreed to choose sustainable development via the promotion of social and environmental quality investments as the central theme of the upcoming EU-CELAC1 Summit, in Santiago de Chile in January 2013. Ladies and gentlemen, I strongly believe that we can learn from each other. Therefore, we need to have a dialogue. We need to listen carefully and talk to each other. Indeed, the EU-LAC Foundation pursues a very similar objective. The EU-LAC Foundation The Community of Latin American and Caribbean States (CELAC) brings together the 33 countries that make up the region. It results the merging of the Rio Group and the Latin America and Caribbean Summit on Integration (CALC).
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The Foundation is a catalyst for increased mutual understanding. We will strengthen a multi-stakeholder and a multi-level dialogue across key areas of cooperation between the EU and Latin America and the Caribbean. All of these areas are directly or indirectly related to the issues that have been addressed during this conference. Social cohesion and inclusion, the fight against poverty and employment creation. Sustainable development. Climate change. Integration, trade, and connectivity. Science, technology, and education, with an emphasis on the role of small and medium-sized enterprises. Education and culture. Investment. Europe, Latin America and the Caribbeans participation in international investment and trade flows. We want to connect the non-governmental sectors of Europe-Latin America and the Caribbean and bring them closer to the agenda of its governments. A wide range of stakeholders across the economic, social, cultural, environmental, academic and educational, research and technology domains shall progressively own and invest in the strategic partnership between the EU and Latin America and the Caribbean. The EU-LAC Foundation is composed of the governments of Latin America and the Caribbean and the Member States of the European Union as well as the EU institutions, all of which are represented in the Foundations Board of Governors. It was created in Madrid at the 6th EU-LAC Summit, almost exactly two years ago, has its seat in Hamburg and took up its activities in November last year. We work with a limited number of strategic partnerships from both regions. Each of them represents a specific field of action relevant to the bi-regional partnership and will, in a nonexclusive way, take a leading role in executing activities related to their field of expertise. Our European strategic partners are the Institut des Amriques in Paris, and the Lombardy Region in Italy. While the former is a frontrunner in the field of regional integration, the latter offers a wealth of experience on partnerships among small and medium sized companies, with a special focus on innovation, research and technology transfer.

Generally speaking, Latin American and Caribbean economies need to step up their game in terms of modernisation and productivity, and the EU is very well placed to contribute to this providing quality investment and technology. In this context, a reinforced cooperation between our regions in the field of small and medium size enterprises is crucial and extremely promising. In Europe, small and medium size enterprises play a decisive role for the competitiveness and the dynamism of our economies. Vice-President of the European Commission Antonio Tajani recently underlined the medium-term objective of the European Commission to establish a dialogue between small and medium size companies on innovation with the EUs partners across the world. In Latin America and the Caribbean, we are awaiting the formal approval of two more strategic partners: Fundacin Global Democracia y Desarollo (FUNGLODE) from the Dominican Republic, an interdisciplinary think tank for public policies and the Economic Commission for Latin America and the Caribbeans. Apart from these strategic partners we will build a quality network of committed allies from the public and private sector and civil society. I also have to say that we are a young institution with limited resources albeit great aspirations. We are determined to match these. To do so we of course rely on the explicit political and financial commitment and support of our founding members. In parallel, we are also actively looking for external sponsors. Dear friends, This event has offered us the unique opportunity to strengthen the networks between diplomats, policy makers, business leaders, and academics from all over the world. Indeed, the critical nature of sustainable development for all of us requires smart and creative partnerships. Thank you very much for your attention. Muito obrigada.