The Pacific Alliance: A Latin American Initiative for Asia-Pacific Regional Integration

Dr. Manfred Wilhelmy
Chairman CHILPEC (Chilean National Committee for Pacific Economic Cooperation)

The Pacific Alliance (PA) was established in Lima, Peru in April 2011. The founding members were Peru, Mexico, Colombia and Chile, represented by their Presidents Alan García, Felipe Calderón, Juan Manuel Santos, and Sebastián Piñera, respectively. The new Mexican President, Enrique Peña Nieto, has given his full support to the initiative.

Observers to the PA include Panama (which may become a full member), Costa Rica, Uruguay and Guatemala, among Latin American economies. Outside of Latin America, Canada, Australia, New Zealand, and Japan are important Pacific nations that have joined as observers.

Spain is a European observer, and during the Latin American-European Summit (CELAC-EU) held in Santiago in late January, German Federal Chancellor Angela Merkel expressed support for the PA.

The stated aim of the PA is to deepen the integration process among participants by speeding up measures for the free circulation of goods and financial flows, the delivery of services and the movement of people across borders.

While the nature of the PA has eluded precise definition, it shares elements of a free trade zone (built on the foundations of several bilateral accords among members) and an agreement for greater facilitation, cooperation and partnership.

The PA is outward-looking, aiming to develop the potential of an enlarged economic space of like-minded Pacific-rim economies in Latin America for interacting with the Asia-Pacific region. Of course, to the degree that the PA makes progress, it should likewise increase links with other parts of the world, hence the positive reactions in Europe.

The combined population of current PA is about 210 million people. PA members are in the segment of middle-income to advanced emerging economies seeking to further growth strategies based on open and competitive markets. PA members aim to achieve deeper levels of integration by opening up their reciprocal trade without excluding sectors or specific goods. The combined exports of PA members account for 55% of Latin American global sales, i.e., the PA is becoming the largest trade grouping in the region, ahead of the Mercosur, led by Brazil.

The goal for 2013 is to agree on 0% tariffs for 90% of traded goods. To foster intra-PA trade, rules of origin are being simplified. Foreign investment laws are under review to make the PA area more attractive for foreign companies. Government policies are complemented by private initiatives to combine stock market operations of members country exchanges (the MILA accord).

More generally, there is consensus among PA members on the importance of responsible macroeconomic management, especially fiscal discipline, which has strengthened the capacity of PA countries to cope with unfavourable conditions in the developed economies. Thus, public debt as a percentage of GDP is at low or moderate levels (Chile 16.6%, Peru 19.6%, Mexico 43%, Colombia 46.6%), and the CPI inflation rate is under control: in 2012, the highest rate in the PA was in Mexico (4%) while the lowest was in Chile (1.5%).

Institutional consolidation for better governance is a high priority in the PA. While important domestic challenges remain, PA economies share a commitment to democratic stability and greater transparency and accountability. Infrastructure development for better domestic and international connectivity is another shared objective calling for public-private partnership and international cooperation. Last but not least, social policies, especially in health, education and housing, are priorities of PA members aiming to develop their “human capital”. In tertiary education, academic exchanges in the PA area are an important aspect of cooperation, which is also seen as a pro-integration policy by increasing mutual knowledge and reciprocal confidence.

The PA is based on a Framework Treaty that was signed at the 4th PA Summit, held in Chile in June 2012 at the Paranal Astronomical Observatory near the city of Antofagasta. The treaty has not been ratified by the members; however four Working Groups are achieving progress on an extensive agenda of negotiations in the areas of cooperation (coordinated by Peru), services and investments (coordinated by Colombia), mobility of persons (led by Mexico), and trade and integration (this WG is led by Chile). The Inter-American Development Bank provides technical advice when requested by the WGs.

While many agreements will require formal legislative enactment by members, important steps are being taken unilaterally or under current rules and regulations. For example, to facilitate travel, Mexico has exempted residents of Colombia and Peru from entry visa requirements up to 180 days. Trade promotion organizations of PA members are establishing integrated offices in a number of locations, thus saving costs, improving facilities, developing a PA image, and, whenever possible, conducting pilot projects for jointly promoting their goods. For example, the Chilean program of food export promotion “Flavors of Chile”, which aims to develop markets for high-end foods and beverages, is the basis for a combined “Pacific Alliance Flavors” project. In the area of tourism there is much room for cooperation by coordinating the promotion of services, harmonizing standards, and improving public-private collaboration.

To develop PA cooperation, a PA Cooperation Fund will be established which should provide financing for specific projects. The involvement of the private sector is to be channeled via a PA Business Council, which draws on the experience of the APEC Business Advisory Council, and is of special interest to companies from PA economies that have investments in the area.

In sum, the PA is an initiative in progress rather than a closed “bloc”. Its foundation is a shared belief in the benefits of deeper regional integration and cooperation in Latin America, especially by way of free trade and investment and the mobility of people.

The PA is not directed against any non-members or grouping in the region. Thus, the view of the PA as potentially “anti–Brazilian” is wrong. All PA members appreciate and value their economic and political relations with non-members in the region. Nor is the PA directed against other groupings. However, the PA members share a common view of the importance of deepening integration and accelerating the free circulation of goods and financial flows, the delivery of services and the movement of people across borders rather than protectionism or populist and non-market based stances evident in other regional groupings.

In just two years, the PA has made considerable progress. The political commitment of government leaders is real, and the economic, social, and cultural foundations are in place. The challenge is to achieve the goals of “deeper integration” according to the vision of the founders and to expectations in the international community.