On January 30th, the Presidents of the Pacific Alliance’s Member States agreed to liberalize intra-trade by 90% by March 31st. The move would bring tariffs down to a mere 10%, a significant reduction in the region given the rising protectionism throughout Latin America, especially from Mercosur, which raised external tariffs to 35% last year. This action brings to light the origins and challenges the Pacific Alliance will face.
The Pacific Alliance was signed on June 6, 2012, in the deserts of Antofagasta, and by signing it, the Presidents of Colombia, Chile, Mexico, and Peru bound the economies of their countries together. The brainchild of former Peruvian President Alan Garcia, the Alliance is meant to create a coalition in Latin America that would expand its economic partnership with the growing Asia-Pacific region.
Together, the member states make up an area of $2 trillion GDP with a total population of 215 million. Combined, the Alliance ranks as the 9th economy in the world. Similarly, nearly all the member states have signed free trade agreements with each other, the European Union, China, and the United States, which, despite its slow economic recovery, remains a crucial partner for the Alliance’s economic growth.
But how will this new alliance fare? Latin America already has numerous regional organizations, and some critics argue that the stagnation of these blocs, such as the Andean Community and Mercosur, make this new group appear to be merely another opportunity for photo ops. Others state that this new group provides a political alternative to the Venezuelan-led Alianza Bolivariana para los Pueblos de Nuestra América (ALBA), which unites only the far left governments, or even the Brazilian-led Mercosur, which is well known for its protectionist policies.
Their homogeneity in domestic and foreign policies provides the Pacific Alliance with a strategic advantage, as disagreements between the nations are less likely to occur, thus dispelling the possibility of stagnation. All four nations are market-friendly; their economies represent 35 percent of Latin American Gross Domestic Product (GDP), manage 55 percent of the region’s exports, and have stable governments. As their first step, the presidents agreed to eliminate visa requirements for their citizens between the four nations of the Alliance. Their stock markets are currently in the process of unification, as Bolsa Mexicana considers joining Mila, the Colombian-Chilean-Peruvian stock market.
These are good initiatives, but the member states must be sure to take further steps towards economic integration. With the vision of promoting economic relations with Asia, it is imperative that the Alliance work towards joint economic policy, which would allow for mutual benefits in economic trade. A first step should be a push by Chile, Mexico, and Peru towards the inclusion of Colombia into the Trans-Pacific Partnership. Similarly, the Alliance should move towards a free trade agreement with the Association of Southeast Asian Nations (ASEAN), which will provide a $1.8 trillion market for the Alliance’s economies.
The Alliance must also avoid the problem of Mercosur, which has moved towards protectionism. While Mercosur serves the purpose of economic integration in the southern cone, its recent protectionist tendencies prevent such integration. This tendency is illustrated by Argentina’s usage of sworn statements (Declaración Jurada Anticipada de Importación [JDAI]) on Brazilian goods, and Mercosur’s announcement to increase external tariffs from 14 to 35 percent. Thus, the Alliance’s aims of free trade with Asia and the Member States’ records provide an alternative for those nations in the region that have market oriented economies. In fact, Paraguay and Uruguay have announced that they seek observer status in the new regional bloc. The organization must also circumvent the European experience of fiscal and monetary union. Before taking important step such as spearheading a comparable economic union, the region must first deal with internal political and social matters, such as inequality, poverty, and the inefficient pension system.
Critics argue that geopolitics will prevent lasting economic integration. Indeed, Peru and Chile continue to have border issues, while Colombia and Mexico must deal with internal conflict, which affect their immediate neighbors. However, it is important to note that economic relations can alleviate these issues. With regards to the Peruvian-Chilean dispute, economic integration promotes cooperation in such issue by creating the necessary trust and cohesion that allows governments to tackle controversial issues. In fact, both nations have agreed to adherent by the International Court’s upcoming ruling on their border dispute. A case in point is the economic relationship between Canada and the United States: both nations have border disputes, yet they also maintain a thriving economic partnership. Lastly, economic trade will expand economic growth, which gives Bogota and Mexico City the ability to bring informal workers (individuals not formally contributing to the economy–not paying taxes or receiving benefits, often not members of unions) into the formal economy, thus reducing the incentive for such citizens to join organized crime.
In conclusion, the new Pacific Alliance has the potential for success. Its members should move forward with small-scale economic integration and expand the bloc’s trade with the Asia-Pacific region. However, the member nations must also take steps towards solving their remaining political and social issues, which are crucial criteria for further economic integration.