The Pacific Alliance is a free trade agreement that, among other things, reduces tariffs for goods exchanged between its four member countries: Colombia, Peru, Chile and Mexico, joined by their shared access to the Pacific Ocean and relative economic strength in Latin America.
Established in 2012, the Alliance unites the four economies in a trade bloc to liberalize commerce and improve integration, according to Colombia’s Ministry of Business, Industry and Tourism.
Economic boost
A key facet of the trade agreement is the tariff reductions that allow individuals, firms, and governments based in any of the member countries to trade more easily and more cheaply with one another due to reductions in inter-country tariffs. The objective is to offer an economic boost in terms of employment, access to goods from other markets, a larger market for domestic firms and as a result, an increase in trade and economic growth to each of the member countries.
The second dimension allows for the four economies to hold more weight in the global market and to attract more foreign trade and investment: countries investing in one of these economies will be granted easier access to the others by way of lower trade barriers, making the region as a whole a more attractive investment. This aims to increase the exports of member countries to non-members.
Asia-pacific interest
The Alliance differs from other free trade agreements in Latin America given its explicitly stated interest in integrating with the Asia-Pacific region, according to the Financial Times.
Objectives
According to the Council of the Americas, the key aims of the Alliance are:
To increase trade
Member countries decided in 2013 to eliminate 90% of tariffs which raise the cost of trading between one another.
To integrate financial markets
The Latin American Integrated Market is the joint stock exchange between Colombia, Chile and Peru which Mexico has taken steps to join since 2013. The stock exchange allows for easier cross-border trading (mergers and acquisitions) of companies.
To create multilateral ties
The Alliance has negotiated one-way trade deals with the EU and the United States, but particularly focuses on increasing trade with the Pacific coastal countries of Asia (including China, Japan and Hong Kong) and South America, which comprise the fastest growing economies in the world.
To increase migration
Ease of migration between member countries allows for workers and students to access more opportunities and the flexibility to work where they are most productive. This should act to improve the international competitiveness of the region.
60% more exports than MercoSur
Since its inception, the Alliance has had a number of successes: as of May 2014, the four economies were expected to grow on average 4.2% amid lags in the major Latin American economies of Brazil, Venezuela and Argentina whose expectations were on average 0.6%, according to Bloomberg.
The Financial Times reported in April 2014 that the key to the Pacific Alliance was size: forming a combined 39% of Latin America’s economy, the Alliance is the only real alternative power to the long-standing dominance of Brazil.
It also records significantly more foreign trade than other Latin American free trade agreements, reporting 60% higher exports than Brazil, Argentina, Uruguay and Paraguay trading bloc, MercoSur (the Southern Common Market).
Prospects
The Pacific Alliance countries have strong prospects despite historic reliance on commodities, reported US newspaper, the Wall Street Journal (WSJ) in early 2014: each of these countries has taken initiatives to export a greater range of goods and services and to maintain economic stability alongside high productivity gains and economies open to investment.
A number of countries hold “observer” status in the Alliance (including Australia, Canada, China, South Korea, Spain, United States, France, Japan and New Zealand), allowing for them to attend and voice their interest in Alliance meetings while being excluded from official membership.
Costa Rica is the newest member of the trading group, having begun the process of integrating as a member state in February 2014, the Alliance announced on their website.
A number of countries are considered observers with potential for becoming member countries, notably Canada, the United States and Panama.
Key conditions for a country to join the Pacific Alliance are having democratic governments and one-way trade deals with each of the member countries, according to UK international newsmagazine, the Economist.
Criticisms
The European Parliament said in a briefing that Mexico’s trade dominance could be a concern for the Alliance: in 2012, Mexican exports represented 67 % of all Pacific Alliance’s exports, and its exports to the USA alone counted for more than 50 % of the total value of exports from the trading bloc.
This could raise concerns for Colombia, Chile and Peru, insofar as they open their borders to the external influence of a dominant economy, like Mexico, within the Alliance.
This is just one of many trade agreements that Colombia has entered into in recent years; trade deals with the US have also been fraught with similar criticism.
