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From issue: Latin America Goes Global (Spring 2013)

AQ Feature

Regionalism: The Pacific Alliance

Latin America is no stranger to new political and economic blocs. In the past decade, the region has experienced a deluge of presidential summits and ministerial meetings that have led to the establishment of a number of new groupings. Among these, the Alianza del Pacífico (Pacific Alliance), which is celebrating its two-year anniversary, has the greatest potential to significantly deepen economic and political integration. Its accomplishments so far are impressive, and there is plenty of room for further growth.

Peru, Chile, Colombia, and Mexico signed the Lima Declaration calling for the creation of a Pacific Alliance in April 2011; and in June 2012, the four presidents signed a pact officially creating it. The Pacific Alliance differs substantially from recent agreements that tend to be regionally focused, such as the Unión de Naciones Suramericanas (Union of South American Nations—UNASUR, 2004), the Alianza Bolivariana para los Pueblos de Nuestra América (Bolivarian Alliance for the Peoples of Our America—ALBA, 2004), and the Comunidad de Estados Latinoamericanos y Caribeños (Community of Latin American and Caribbean States—CELAC, 2010). Unlike the other groupings, the Pacific Alliance goal is to deepen cooperation among members with the explicit purpose of forging closer relations with the Asia-Pacific region. Whereas UNASUR, ALBA and CELAC view regionalism and integration as tools for combating globalization, the Pacific Alliance sees them as critical links to global flows.

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The weight of this economic bloc is impressive. It has a combined population of 204 million (36 percent of Latin America’s population), a GDP of $1.7 trillion (35 percent of regional GDP), and global trade of $1.045 trillion, which represents half the region’s world total.

A Fast Start

In its first two years, the Pacific Alliance has convened six presidential summits. In notable contrast with the gatherings of other Latin American groups, their communiqués provided specific statements and detailed timelines to advance agreed-upon goals.

Each summit checked off progress in achieving commitments made in the previous meeting. For example, just over a year after agreeing to create the Pacific Alliance, the leaders signed a framework treaty at the fourth presidential summit in Chile in June 2012. Although the treaty is pending ratification by member countries, working groups are moving forward on issues of general cooperation, services and investments, movement of people, and trade and integration. In November 2012, visas were eliminated among the countries.

Also in contrast to the underlying purpose of other groupings—including economic blocs such as Mercosur—Pacific Alliance members have achieved consensus on a model of economic and political integration aimed at attracting investment and creating export platforms for the global market. All have opted for a pragmatic relationship structured around bilateral free-trade agreements (FTAs) with the U.S., the EU and Asian countries.

The Pacific Alliance is perceived as a geopolitical counterweight to ideological and political trends on display in countries ranging from Brazil to Venezuela. It looks outward, acting in some ways like a free-trade zone (through the several bilateral accords among its members). But it is also oriented toward promoting greater cooperation and partnership among member countries. Another key objective is facilitating entry into the Asian market and, particularly, creating greater bargaining power than any of the individual countries could muster separately when approaching China. At the same time, the Pacific Alliance seeks a competitive edge for its members when competing with Asian countries for trade with the U.S. by providing better—and cheaper—products.

Panama and Costa Rica, though currently observers, are expected to become full members once trade agreements are signed with the four founding countries. Other observers include Uruguay, Guatemala, Australia, Canada, Spain, New Zealand, and Japan. Membership is also open to Uruguay and Guatemala if they sign FTAs with the  founding members.

The Pacific Alliance has made progress in removing tariffs and rules of origin that have blocked the development of regional economies of scale in sectors such as e-commerce, the airline industry, financial and electrical integration, and infrastructure. Also under review are obstacles that prevent cross-border investment, academic exchanges and tourism, as well as how to enhance cooperation on environmental and social issues and scientific and technological innovation. In 2012, the Alliance formed a Business Council and began police and customs cooperation to track cross-border criminal activity.

In the financial sector, members formed the Mercado Integrado Latinoamericano (Integrated Latin American Market—MILA) in May 2011 to combine the exchanges and central securities depositories of Chile, Colombia and Peru. This year, the Mexican Stock Exchange is expected to join MILA, with the regulatory requirements for joining currently under review. Still, starting MILA in the midst of the economic crisis has led to a slower start-up than originally expected.

In addition, the export promotion agencies of each country (ProChile, Proexport Colombia, ProMéxico, and PromPeru) agreed to share offices, information, experience, and sector projects, and to collectively offer products and services at international fairs. Joint market research and trade missions are also being organized to China, South Korea, Japan, and India.

With a view to generating more entrepreneurship, particularly among youth, they have agreed to create a joint scholarship fund that would allow students to study in any member country in areas that are critical for improving the competitiveness of micro-, small- and medium-size enterprises. This topic is on the agenda for the seventh presidential summit, to be held on May 24 in Cali, Colombia.

For 2013, the members have set goals that include securing agreement on zero percent tariffs for 90 percent of traded goods. They are also simplifying rules of origin to foster intra-Alliance trade and reviewing foreign investment laws so that member countries are more attractive to foreign companies.

For now, Alliance members are focusing on economic progress, leaving the door open for others to join. After demonstrating that economic integration among these members oriented to the Pacific is feasible, the Pacific Alliance’s next challenge is to deepen it.

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