Pacific Alliance Announces Tariff Elimination Deal

13 February 2014

Leaders from the Pacific Alliance announced a major regional trade pact on Monday. Meeting in the Colombian city of Cartagena, members agreed to slash tariffs on 92 percent of products, with the remaining eight percent - including sensitive products such as bananas and coffee - to be phased out over a longer period.

The group counts Chile, Colombia, Mexico, and Peru as members, with Costa Rica set to take part as a full member next year. Panama and Guatemala could soon join their ranks.

The current participants boast over 200 million consumers between them, and together have an economic output equal to 35 percent of total GDP of Latin America and the Caribbean, while producing 55 percent of the region's total exports.

The nascent trading bloc was launched just under two years ago in June 2012, with a goal of facilitating unrestricted movement of capital, goods, and services, as well as people.

Colombian President Juan Manuel Santos welcomed the energetic pace set by negotiators. "I don't think there has been an integration process that has taken decisions so fast as the Pacific Alliance has done," he told the Financial Times following the announcement.

"We have a common vision on how to manage our economies, common attitudes regarding foreign investment, the role of the market in the economy, respect for private property," Santos added.

Eyeing new partnerships

A key driver behind this vision is a desire to strengthen export capacity in global value chains, with a particular eye on nearby emerging Asian giants. Three of the participating countries - Chile, Peru, and Mexico - are already part of the 21-country Asia-Pacific Economic Co-operation grouping, with Santiago and Lima also involved in the ongoing Trans-Pacific Partnership negotiations. (See Bridges Weekly, 13 June 2012)

Looking at other trade arrangements, commentators have been quick to draw comparisons between the Pacific Alliance, still in its infancy, with decades-old neighbour Mercosur. The latter includes Argentina, Brazil, Paraguay, Uruguay, and Venezuela as full members.

Analysis by international bank Morgan Stanley suggests that the newer Alliance group will grow by an average of 4.25 percent in 2014, while other economists predict contraction for Venezuela, a recession for Argentina, and sluggish 2 percent growth for Brazil over the same period.

Many economists have suggested that the Latin American trade groups represent an ideological and economic divide in the region between free trade and state management. Brazil and Argentina in particular have drawn fire repeatedly from some of their international partners for currency and trade policies deemed to be protectionist.

Mercosur has, however, reportedly been working with the four Alliance members to gradually cut tariffs on a range of products and services. Just last week, Brazil's foreign minister Luiz Alberto Figueiredo indicated an interest in accelerating this process.

"We are interested in quickening the integration process," Figueiredo said before the Brazilian Senate foreign affairs committee. "We've talked with our friends in the Pacific Alliance to make it clear that the Mercosur universe is not restrictive or selective and we want full integration with the rest of the countries from the region, and other countries, such as the Europeans."

Moving forward, each of the Pacific Alliance countries must now ratify Monday's agreement, meaning that the actual elimination of tariffs within that group may not happen for several months, possibly not until next year, according to estimates by officials involved in the process.

ICTSD reporting; "Latin leaders to sign Asia-targeted trade pact," AFP, 11 February 2014; "Pacific Alliance: moving forward," FINANCIAL TIMES, 11 February 2014; "Latin Countries Forge Trade Accord With Eyes on Asia," WALL STREET JOURNAL, 10 February 2014; "Mercosur interested in trade integration with members of the Pacific Alliance, says Brazil," MERCOPRESS, 8 February 2014.

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