The Pacific Alliance was the highlight of the Regional World Economic Forum Latin America 2014, which took place in early April in Panama City with the theme “Opening Paths for Shared Progress.”
The Pacific Alliance (PA) unites the emerging economies of four countries that share, among other things, their borders with the Pacific Ocean and an economic interest in Asian-Pacific trade. The signatory countries, Chile, Colombia, Mexico and Peru, represent 40 percent of the GDP in Latin America and a combined population of 206 million. If the bloc were a country, it would be the sixth largest economy in the world.
“Latin America has changed in the last decade. The region is more diverse and autonomous, and despite its growth and accomplishments in poverty reduction, it still faces important challenges.”
The Pacific Alliance is more than a free trade agreement. According to Mexican President Enrique Peña Nieto, who was interviewed by Dominican Republic ex-president Leonel Fernandez during the IX World Economic Forum (WEF) in Panama: “The Pacific Alliance is a trade integration mechanism that seeks, as part of its objective, the free circulation of goods, services, capital and people. It’s a union that will transcend the coming together of these Latin American countries and will serve as a bridge to Asia-Pacific, the world’s most dynamic area.”
When expressing the collective sentiment of the PA, Chilean Chancellor Heraldo Muñoz said the following: “Latin America has changed in the last decade. The region is more diverse and autonomous, and despite its growth and accomplishments in poverty reduction, it still faces important challenges.” He also added that there are diverse paths to further development in the region. This view was complemented by a statement from José Miguel Insulza, General Secretary of the Organization of the American States (OAS), who stated during the WEF: “The PA is a good idea, because it opens an important door; we must not forget that the region also has an Atlantic coast.”
The PA has been well received by nonmembers. Guatemalan President Otto Perez Molina said “the regional integration has the potential to create large consumer markets that will attract foreign investment; greater investment leads to less poverty, and with less poverty there is greater security.” He concluded by saying, “The best social policy is a good economic policy.”
Secretary of Foreign Commerce from Brazil Daniel Marteleto Godinho, established at the WEF that his country’s wish for integration is reflected in the free trade agreements that it holds with nations from the region. Honduras’ President Juan Orlando Hernandez talked about a project in his country that consists of two mega-ports, one on the Atlantic, and the other on the Pacific, “where there’s room for post-Panamax ships, but to join them, we’re working in what we call a dry canal,” a highway that joins Port Castilla in the Atlantic and Port Amapala in the Pacific. He characterized it as “a compliment to the Panama Canal.”
Initiatives of the Pacific Alliance:
Tariffs were eliminated on 92 percent of goods and services, and the rest will happen gradually.
The need for visas between member countries was eliminated.
A cooperation fund of $1 billion U.S. was created to penetrate foreign markets, and a separate fund for student scholarships within the member countries was also created.
The members agreed to share embassies and consulates; many are already doing so.
The trade promotion entities, ProChile, Proexport Colombia, ProMexico, and PromPeru, will join together to increase exports, foreign direct investment, and international tourism within the PA region. They will also share some commercial offices.
Mexico will join Latin America’s Integrated Market, MILA, comprising the stock exchanges of Chile, Colombia, and Peru.
In the Works
The automatic exchange of fiscal information to avoid tax evasion, money laundering and terrorist financing.
Other subjects under review include education, standardization of tariffs and taxation, government procurement, entrepreneurship and innovation, streamlining regulations through the Single Window for Foreign Trade, a productive supply chain and the environment.
From the 30 observer states at the PA, Costa Rica and Panama are observer candidates. The then-President of Costa Rica, Laura Chinchilla, said during the WEF that her country wishes to join because “the AP is a group of committed nations championing solid integration with a clear vision of where they’re heading.”
As a preliminary step, during the WEF, Panama signed a free trade agreement with Mexico, in order to comply with the legal framework of the PA that requires each member to enter into agreement with more than half of the member countries.
Regarding the lack of infrastructure, Santiago Rojas, Minister of Commerce, Industry and Tourism of Colombia, commented that “the PA will create a fund for infrastructure development in the member countries.”
The numbers that signal the extreme poverty and inequality of nearly 30 percent are worrisome, even though they have decreased, thanks to the increasing growth of the middle class, up by 32 percent.
In terms of human capital, the WEF Global Shapers community, a network of hubs developed and led by young people with a drive to make a difference in the countries, concluded that their motivation comes from being able to make a significant contribution to the well-being and development of their communities.
The PA has a business council known as the CEAP. It’s a group of four industry leaders from each country who individually and voluntarily have agreed to become promoters of the PA. They represent the most significant economic sectors of each member state. “The CEAP makes recommendations regarding integration processes, ways to improve competitiveness and joint actions before other markets,” as expressed by Santiago Rojas.
The PA demonstrates that market willingness can transcend political discord and will generate dynamic economic activity in the region, resulting in imminent integration. Its gradual implementation will reveal how quickly it self-corrects, and who will be the winners and losers in this strategy.
PA Observer Nations
Australia, Canada, China, Costa Rica, the Dominican Republic, Ecuador, El Salvador, Finland, France, Germany, Guatemala, Honduras, India, Israel, Italy, Japan, Morocco, Netherlands, New Zealand, Panama, Paraguay, Portugal, Singapore, South Korea, Spain, Switzerland, Turkey, the United Kingdom, the United States and Uruguay.