Colombia’s trade official to Mexico, Sergio Escobar, said on Sunday that Colombia could increase its trade with members of the Pacific Alliance group by 500% over the next 2 years.
“Today Colombia exports $700 million worth of products and the figure could grow fivefold with the alliance,” Escobar told Chinese news website Xinhua.
Along with Chile, Peru and Mexico, Colombia is one of the four members of the Pacific Alliance, a trade bloc that shares the mission of liberalizing trade, integrating capital markets and making an economic play toward Asian markets.
The big projections come on the back of what many believe to be talk of a firm business deal amongst Pacific Alliance members, instead of the typical unsubstantiated rhetoric usually heard from other Latin American trade blocs, like Mercosur and ALBA.
According to an analysis from The Economist, intra-regional trade around Latin America is still down at 23%, compared to 63% in the European Union. But those figures could be changing soon.
In Theory and in Practice
So far, the Pacific Alliance has taken steps to reduce trade barriers. At a meeting in Cali earlier this year, leaders agreed to slash 90% of tariffs between group members and planned to cut down the remaining 10% over a longer period of 3 to 7 years.
MORE: Colombia’s Finance Minister concludes Pacific Alliance meeting
But the swing towards Asian markets and taking advantage of its booming commodities appetite is a place where Colombia still has some catching up to do. While Peru increased its exports of commodities to China from 10.9% in 2002 to 16.8% in 2012, and Chile exported 22.7% of its largely mining-driven commodities to China in 2012, Colombia went from 1.1% in 2002 to just 5.5% in 2012. And a pivot is nothing in an atmosphere of high risk. Chile, Colombia and Peru still see commodities making up more than 65% of total exports.
By keeping its peso weak and running through a stimulus plan earlier this year, Colombia is making an attempt to look more like Mexico, which has a strong manufacturing base supporting its economy. But whereas Mexico’s manufacturing accounted for roughly 75% of total exports in 2012 – Colombia’s industry made up just 18%. In the face of what many economists view to be an end to the global commodities super-cycle, that leaves Colombia exposed. In 2012, 85% of its exports were commodities.
Strength from Within
Instead of relying solely on exports, increasing trade within the bloc could be the solution, according to Escobar. “The problem isn’t that it’s hard to do,” he explained, “but that it isn’t being done… we are not taking advantage of the large [Pacific Alliance] market, and that’s why we have to be more aggressive.”
Though the size of the bloc’s annual GDP output still falls just below Brazil’s $2.4 trillion in 2012, the Pacific Alliance grew at 4.6% between 2011 and 2012, compared to Brazil’s modest 1.8%. Launched in 2012, the bloc attracted $71 billion in foreign direct investment the following year, according to Reuters.
Sources
- Colombia expects to expand trade with Pacific Alliance members (Xinhua)
- The Evolution of Latin America’s economies (Latin America’s Moment Blog)
- Latin American geopolitics: A continental divide (The Economist)
- Latin America’s Pacific Alliance liberalizes trade (Reuters)