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Latin America’s Pacific Alliance gathers pace

Latin America’s Pacific Alliance gathers pace

Posted by Juan Gavasa on February 14, 2014

On Monday, the Pacific Alliance, which is barely two years old and comprises Chile, Colombia, Mexico and Peru, held a groundbreaking seventh summit, in Cartagena, Colombia.

Last June, we had cause to comment on the new dynamism in regional economic integration coming from the western rim of Latin America and the Alliance’s orientation towards Asia. This week, the leaders of the four countries – significantly, outgoing Chilean president, Sebastián Piñera, was accompanied by his successor, Michelle Bachelet – cemented their commitment of eight months ago, to accelerate the pace of integration in the new regional trade bloc, by signing an agreement to eliminate import tariffs on 92% of goods and services traded with each other. Tariffs on the remaining 8% – sensitive agricultural products mainly – will be reduced on a phased basis.

In so doing, the presidents have effectively created a huge new market of some 212 million consumers, founded on the somewhat unfashionable tenets of free trade and market liberalisation. In this respect, the Alliance’s members, already among the more robust economies of Latin America, are obviously confident that the agreement, which purportedly sets clear rules and creates concrete opportunities for the increased movement of goods, services and investment, will not only open up new markets but also make their economies more attractive for foreign investment. Moreover, deeper integration is expected to facilitate supply chain linkages with a view to producing more competitive goods for the global market.

Trade among the four countries is, however, still relatively small. In 2012, exports amounted to just over 21 million US dollars while imports were a little more than 22 million US dollars – barely 4% of the group’s trade with the rest of the world. But the new agreement is expected to contribute significantly to increased intra-regional trade and investment flows, higher GDP and job creation.

Interestingly, what has been negotiated goes beyond a mere free trade agreement, with provision for the elimination of visas and the free movement of people and capital complementing that of goods and services. Already, tourism between Colombia and Mexico has increased notably and student and academic exchanges are also expected to rise. In addition, shared diplomatic representation and joint trade offices abroad have become a reality, signalling a pragmatic, sensible and economic approach to foreign outreach.

As Colombian President Juan Manuel Santos highlighted in his opening statement, the agreement is “the best demonstration of the long-term vocation” shared by the participating countries. And with observers Panama and Costa Rica soon to join the group, the message is that the Alliance is not an exclusive club but an open mechanism to which other countries of the region might also aspire. Perhaps that is why Cartagena, a Caribbean city, was chosen – the Alliance’s gaze is not limited to the Pacific.

It is an obvious irony that the same leaders should have attended last month’s summit of the Community of Latin America and Caribbean States (CELAC), in Havana, Cuba, with all its political overtones and rhetoric but which, for the foreseeable future, will remain a mechanism for political dialogue, weighed down by ideological differences.

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