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In Search Of Unity On Latin America Trade

In Search Of Unity On Latin America Trade

Posted by Juan Gavasa on November 12, 2014

Since becoming Chile's president a second time and since her first meeting with the heads of state for the Pacific Alliance — Chile, Colombia, Mexico and Peru — Michelle Bachelet has insisted on the importance of moving closer to a separate, but parallel, Latin American trade alliance known as the Mercosur bloc.

But in Lima, there is skepticism about growing closer to this subregional bloc that includes Argentina, Brazil, Paraguay, Uruguay and Venezuela. César Peñaranda, executive head of the Peruvian business development institute known as IED, believes that "annexing" Brazil and Argentina into the Pacific Alliance would dilute it and hinder its progress.

"If they start incorporating countries that are not talking the same language on certain issues, that would take something away instead of advancing," he says.

Peñaranda says no other countries should join the Pacific Alliance in the short term, or at least until it consolidates itself, which would be during the first half of 2015, when the four parliaments will ratify the Alliance and its norms.

This is what will permit the sustained implementation of all agreements reached so far, says Humberto Astete, a tax partner at consultants Ernst & Young, who agrees the Pacific Alliance must consolidate before expanding.

The Alliance faces several challenges besides parliamentary ratification, including standardizing trade procedures and norms, harmonizing tariffs between members, and forging business alliances, says Juan Carlos Mathews of Peru's Pacific University.

Mixed messages

At a government level, Peru and Chile are taking contrary postures to these. During a May meeting of Pacific Alliance trade ministers, Peruvian Minister Magali Silva said the Alliance is open to the membership of new countries, particularly Brazil and Argentina. Chile's Deputy Foreign Minister Edgardo Riveros was more specific, saying in Sao Paulo in late August, "We want to be a bridge between the Pacific Alliance and Mercosur," and rejecting the idea of the "two coasts living with their backs to each other."

Juan Ruiz, chief Latin America economist for BBVA Research, sees these as promising words. He believes that to integrate Brazil and Argentina into the Alliance, Mercosur states should change their economic policies to align with the Alliance's requirements. "One requisite ... is having a free trade agreement signed with all the countries in the Alliance, then taking concrete specific steps," he says. Mexican President Enrique Peña Nieto also said recently that the Alliance is open to other countries, provided they promote free trade.

The Pacific Rim economies are much more open, more stable in macro-economic terms, and have a greater willingness to reform, says Juan Carlos Martínez Lázaro, head of in-company programs at the IE Business School. But, he say, "In Mercosur, some economies like Brazil, Argentina and Venezuela are following a contrary line."

The differences between the blocs are evident. "Mercosur is a trading union between countries that have signed free-trade agreements with eight or nine countries," says BBVA's Ruiz, while "Alliance countries have each signed more than 40."

Argentina could update its economic policies with a change of government next year, says Martínez Lázaro. "But I think it will be a long time before Venezuela is on the same political and economic wavelength. But what could be done is Mercosur and the Alliance signing specific agreements on a tariff item or on economic cooperation."

It would be better to boost ties and increase integration with Mercosur members, says Hernán Vallejo, a lecturer at Colombia's Andes University, instead "of trying to form a single bloc, since member countries are focusing on quite different things." Current initiatives are intended to identify areas of shared interests, but are "very preliminary," he says.

Those who prefer that a giant, multifaceted economy like Brazil's were kept out observe that the Alliance's main point of attraction is the harmonized visions of its members.

The Alliance's collective economic figures are no trifle. As a bloc, the four would constitute the world's eighth largest economy, a population of 209 million, and expected growth rates of 5% a year, Astete says.

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