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The Alianza del Pacifico was formally launched in Chile in June 2012 at a summit of regional leaders.
Tuesday, December 18, 2012
Perspectives

Alliance of the Pacific: An Ambitious Partnership


The United States would be wise to focus more on Latin America’s Alliance of the Pacific.

BY FERNANDA LUCHINE ISHIHARA

Despite the lack of coverage in U.S. media, the Alliance of the Pacific is an ambitious integration effort between Colombia, Chile, Peru and Mexico which was formally launched in June 2012. Costa Rica has already formally requested to join the group, while Panama is an observer, and presumably future full member. Canada, Australia and New Zealand achieved observer status this month. Accounting for 35 percent of Latin America’s GDP and half of the region’s global trade volume, the main objective of these four countries is to strengthen their own economies through increased ties with Asia.

Like other integration efforts in the region, Alianza del Pacífico aims to achieve the free flow of goods, investments, services and people among its members, as well as building joint infrastructure projects. As leading Latin economies in the Pacific Rim, Chile, Colombia, Peru and Mexico want to take maximum advantage of Asia’s growing influence and hopefully conclude with a free trade deal with the Association of Southeast Asian Nations, (ASEAN). But at least two elements distinguish this alliance from any other: the creation of a joint university system and the expansion of the joint stock exchange called Mercado Integrado Latinoamericano, (MILA).

The implementation of a unified academic system will promote greater student exchange and knowledge interaction among these countries. This integration will also mean that a university degree obtained in one of the four countries will be recognized by the others, especially important for professional degrees. In the long run, the free flow of specialized personnel among Chile, Colombia, Mexico and Peru should help fill gaps in the technical capacity in each of these countries.

As for MILA, its operations started on May 2011 when Chile, Colombia and Peru merged their stock exchanges. The main driver was a desire to give investors more options and businesses greater access to capital. Note that MILA was not actually part of the Pacific Alliance’s terms – the three South American countries had merged their markets prior to the formation of the Alianza.   Signing the Alianza agreement created the impetus for the Mexico’s stock exchange to join MILA. And it seems to be underway. The addition of the Mexican stock exchange, the second largest in Latin America and Caribbean, would significantly boost MILA’s operations and make it competitive to the Brazilian stock market, Bovespa - the largest bourse in the region.

Alianza del Pacífico contrasts with the torpid existing regional agreements, most of which have expensive secretariats but few results. Its rapid progress stands out from the slow pace of other integration schemes, particularly Mercosur. With the addition of Venezuela on July 2012, Mercosur seems to have become more of a political than an economic integration plan. Indeed, as Alianza del Pacífico moves ahead and its members open their economies to the world and integrate with each other, they distance themselves from increasingly protectionist Brazil and Argentina – the key promoters of Mercosur. Likewise, some analysts see political motives in the Pacific Alliance. In a public forum in Querétaro, Mexico on November 12, former Colombian President Alvaro Uribe was quite explicit that one of the goals of the Alliance is to counterbalance Brazil’s political and economic influence in region.

The pitfall of all Latin America and Caribbean economic integration efforts has been the unwillingness of nations to compromise; to put the good of the group over an individual member’s interests. But Chile, Colombia, Peru and Mexico have overlapping national interests and political similarities.  The four are considered the most outward looking nations in the region. They have an enormous interest in closer trade ties with Asia, and Standard & Poor’s has qualified their sovereign debt as investment grades. They are at the top of the Latin America class in the World Bank’s 2013 Ease of Doing Business report.  All but Colombia belong to the Asia-Pacific Economic Cooperation (APEC) and participate in the Trans-Pacific Partnership trade negotiations - a cutting edge regional agreement that has the potential to become an updated version of the North American Free Trade Agreement (NAFTA).  Mexico and Chile belong to the Organization for Economic Cooperation and Development, (OECD) - the club of rich countries.  They are stable politically and have center-left to center-right governments. Are shared national interests the recipe for success?

According to the Inter-American Development Bank (IDB), the bloc is the most promising integration effort Latin America, but will require sustained political will in order to move forward. In fact, all regional integration efforts come with many challenges, and the Alianza del Pacífico is no exception. Despite the optimistic launch, many issues will require careful and prudent negotiation considering that there are few economic complementarities among the four.  For instance, trade among Chile, Colombia, Mexico and Peru together does not surpass 3 percent of their combined global trade, but here’s something to think about.  Australia, New Zealand, and Canada all have Pacific Alliance observer status. They clearly perceive a connection between the Alianza del Pacífico and the Trans-Pacific Partnership. Has the time come for the United States to request observer status in Alianza?  The United States might be wise to treat Alianza del Pacífico as seriously as Canada does.

Fernanda Luchine Ishihara is a Research Associate at the Institute of the Americas at the University of California, San Diego (UCSD). The institute is a nonprofit organization focused on economic development in the Western Hemisphere. She can be reached at fernanda@iamericas.org and on Twitter @iamericas.

 

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