Pacific Alliance Eyes New Trade Deals with Creation of "Associate Member" Role

6 July 2017

The Latin American trading bloc known as the Pacific Alliance has begun talks for free trade agreements (FTAs) with Australia and New Zealand, respectively, following a summit that also welcomed both of those countries and two others as incoming “associate members” of their group.

The four-country Pacific Alliance includes Chile, Colombia, Mexico, and Peru as its members. The coalition was formed in 2011, with the framework agreement confirmed the following year. (See Bridges Weekly, 13 June 2012)

The creation of the new “associate member” role was announced after the Pacific Alliance Leaders’ Summit, which was held in Cali, Colombia, from 29-30 June and included the endorsement of the “Cali Declaration.”

Along with Australia and New Zealand, the two other countries to sign on to become associate members were Canada and Singapore.

Under the Pacific Alliance, the term “associate member” opens up the possibility of collectively negotiating trade deals with other countries outside the Alliance – a development that was welcomed by participants as a landmark move.

“This summit opened a new chapter in the Alliance’s history,” said Colombian President Juan Manuel Santos in describing the new “associate member” position, according to comments reported by Reuters.

The process for becoming an associate member requires negotiations between full members and the country wishing to take on this role. According to the guidelines adopted in Cali last week, the “terms of reference” for these negotiations must “take into account high standards in commercial, economic terms that favour the opening and integration of markets, including, but not limited to, the following areas: goods and services trade, as well as investment.”

Focus on open markets

The Pacific Alliance group was formed with the goal of liberalising goods and services trade, along with facilitating the free movement of persons and capital. They have since announced over the years a series of milestones and intended targets, such as a deal to eliminate tariffs on 92 percent of goods and phase out the rest over a longer timeframe. (See Bridges Weekly, 13 February 2014)

“In times of such uncertainty and scepticism of so many people about the importance of an open economy, of trade agreements, of cooperation, of integration, the Pacific Alliance has succeeded and re-vindicated a path of unity and collaboration,” said Chilean President Michelle Bachelet last week, according to comments reported by RCN Radio.

The Pacific Alliance also has 52 observer countries, who must share the coalition’s objectives and can be invited to the Alliance’s meetings. They can also apply to become full-fledged members of the Pacific Alliance if they have trade deals in place with at least half of the coalition’s full members.

There are already two countries in the process of negotiating accession as full members, namely Costa Rica and Panama. The group has also been looking to establish improved economic ties, including through trade, with another bloc in the region known as Mercosur, which includes among its members Argentina, Brazil, Paraguay, and Uruguay. (See Bridges Weekly, 13 April 2017)

Ciobo, McClay highlight FTA potential

Australian Trade Minister Steven Ciobo and New Zealand Trade Minister Todd McClay both touted the added value of inking trade deals with this Pacific bloc, citing its large market, economic growth, and approach to trade as key factors.

Australia and New Zealand are already observer countries to the Pacific Alliance, as well as having the new rank of associate member.

“The Pacific Alliance is a grouping of fast-growing, like-minded economies committed to the liberalisation of trade,” said McClay in a press statement. He also characterised the upcoming talks as a key component of Wellington’s larger “Agenda 2030” objective of having 90 percent of merchandise trade falling under the coverage of a free trade agreement by that year.

That goal has also spurred New Zealand towards pursuing the eventual launch of trade talks with the European Union, along with exploring the possibility of such an accord with the United States. (See Bridges Weekly, 22 June 2017)

Ciobo, meanwhile, described Australia’s goal in negotiating a Pacific Alliance FTA as that of a “comprehensive, high quality agreement to open new markets for Australian exporters.” He specifically cited Canberra’s interest in areas such as mining, farming, manufacturing, and services trade – along with the large market that would open up should Australia ink an accord with these four countries.

“Australia’s ability to capitalise on this demand is limited by high tariffs that block trade. Tariffs of up to 80 percent are imposed on Australian beef, while dairy products attract tariffs of up to 45 percent and sugar attracts tariffs of more than 30 percent. Australia’s services exports – including education and mining services – also face competitive barriers,” he said.

Moreover, he also noted that Australia has a long history of negotiating with this group of countries. Australia and Peru launched trade deal talks earlier this year, while Australia, Chile, Mexico, and Peru are four members of the Trans-Pacific Partnership (TPP) – a trade deal that has been signed, but not yet ratified.

While the TPP group is currently determining its next steps as the “TPP-11” following the withdrawal earlier this year of the United States, the group has expressed an interest in not losing the gains from those negotiations. Earlier this year, member of the Pacific Alliance and the TPP met in the Chilean coastal town of Viña del Mar to discuss different options for integration, both within their respective groups and collectively. (See Bridges Weekly, 16 March 2017)

ICTSD reporting; “Alianza del Pacífico destaca su integración en tiempos de ‘incertidumbre’,” RCN RADIO, 30 June 2017; “Alianza del Pacífico se abre en Cali a nuevo miembros,” REUTERS, 30 June 2017.  

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