Four Latin nations take large steps forward to forge “a real trade bloc”

The presidents of Mexico, Colombia, Chile and Peru, who met on Thursday in Cali for the VII Pacific Alliance Summit, have made huge advances on economic integration for their Latin American nations after pledging to free up 90 percent of their trade this year.

Made up of four of the fastest-growing economies in the region, the bloc has important geopolitical consequences for the rest of the continent, and it is edging in on Mercosur — the trade group made up of Brazil, Argentina, Paraguay, Uruguay and Venezuela — whose negotiations have been stalled for years. It has also made greater advances before the final negotiations for the Trans-Pacific Partnership Agreement (TPP) — which is being pushed by the United States — have been finalized.

Formally established in June last year, the four countries of the Pacific Alliance make up 35 percent of Latin America’s GDP, and account for 50 percent of exports sent abroad from the continent. Its total population exceeds 200 million people and the entire bloc represents a real challenge to emerging Brazil.

It also presents a new model for regional integration, and is geared toward strengthening democratic institutions, encouraging the free movement of goods, capital, services and people, and penetrating the Asian markets.

This alliance seeks stability and complete openness to eliminate tariffs"

“It’s a paradigm shift,” says Luis de la Calle, consultant and former deputy secretary of Foreign Trade in the administration of Mexican President Ernesto Zedillo, who served from 1994 to 2000. “In the past, the integration processes in Latin America were dialogues that fell on deaf ears, and trade agreements between closed economies.

“This alliance seeks stability and complete openness to eliminate tariffs, restrictions on investments and the movements of people. Mercosur not only does not work, but its members are also closed to the idea of free trade between themselves and others,” he says.

The new bloc is in stark contrast to the other regional bodies with more protectionist policies, such as Mercosur, or more ideological in their formation, such as ALBA (Bolivarian Alliance for the Peoples of America), which has also been at a standstill since the March 5 death of its chief organizer, Venezuelan President Hugo Chávez.

“Mercosur is taking steps in the opposite direction. It has remained stagnant for decades, and backwards when it comes to trade,” said Mexican government sources, who add that they are proud of their country’s new trade strategies, which open up new areas.

Mexico is looking to reduce its huge trade deficit with Asia

They are also excited about the upcoming visit to Mexico by Chinese President Xi Jinping, scheduled for the first week in June. “It will be a great opportunity to jumpstart a relationship that has been stagnant for 12 years.”

Mexico is seeking to reduce its huge trade deficit with China as well as with other countries, such as Singapore and South Korea — which far exceeds that with its partners in the Pacific Alliance — and balance it with the export of raw materials, and compete with Asian giants in the field of manufacturing. According to the Economic Commission for Latin America (CEPAL), in 2012 Mexican exports to China stood at $5.7 billion while it imported goods worth $56.936 billion. This gap increases to $80 billion when put together with figures for the entire Asian continent.

The Pacific Alliance could be instrumental in helping Mexico reduce its trade deficit. Gerardo Esquivel, an economist at the prestigious Colegio de México, argues that the bloc could possibly “serve as trailblazer when it comes to negotiating the TPP and coming up with a joint strategy to open the large Asian markets — something that the US is pushing hard for because of the weakness of its domestic economy.”

“The aim of the TPP is to set strong trade discipline, especially in intellectual property and the way public enterprises conduct business so that one day it can force China to follow suit,” Esquivel said.

For Ramón Padilla, a CEPAL economist, the alliance will have immediate advantages in terms of “offering more alternatives other than the US and European markets, and opening up opportunities for local SMEs [small and medium enterprises].”

While Mexico has signed more than 40 agreements with other countries in the past, they have had little effect in terms of diversifying the country’s trade. In Padilla’s opinion, free-trade agreements are necessary but not sufficient to promote development.

“They must be complemented by an active industrial policy. In the last 15 years, several trading blocs have been created in Latin America, but there hasn’t been any real regional integration,” Padilla said.

It is expected that Costa Rica, which has observer status at the Cali summit, will soon join the pact. The Chinese leader also intends to make a stop in San José during his upcoming tour of the region. Panama and Uruguay have also proposed joining.

“Despite the fact that it is a member of Mercosur and has a leftist government, Uruguay, which already has observer status in the TPP, doesn’t trust Argentina or Brazil,” said De la Calle, the former Mexican deputy secretary of Foreign Trade. “If this alliance is successful, it is going to pose a serious challenge to Brazil.”