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Pacific Alliance: An Ongoing Negotiation

Working paper by Dorotea López; Felipe Muñoz/ University of Chile, 2013

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The new integration scheme that arises in Latin America is known as the Pacific Alliance (PA). It brings together Latin American countries which economies are oriented towards trade liberalization like Chile, Colombia, Mexico and Peru. This article considers that this alliance is an innovative strategy focused on responding to the objectives initially defined by its members. It reviews its construction and status before presenting the specificities of the PA.

PACIFIC ALLIANCE:

AN ONGOING NEGOTIATION

 

Dorotea López G.

WTO Chair

Institute of International Studies

University of Chile

 

Felipe Muñoz N.

WTO Chair

Institute of International Studies

University of Chile

 

 

ABSTRACT

 

The new integration scheme that arise in Latin America is known as the Pacific Alliance (PA) which brings together the economies that had stated their economic policy orientation towards trade liberalization: Chile, Colombia, Mexico and Peru. The PA was established as a joint platform for trade and political articulation whose main objective is defined as the projection to Asia. Negotiations towards the conformation of this area result from the need to respond efficiently to new challenges in the international arena and the own realities of each of the members. This article, throw different approaches suggests some considerations that may make us think that this alliance is an innovative strategy and clearly focused on responding to the objectives initially defined, highly functional to the achievement of business objectives and strengthen global integration models as an economic policy priority.

 

The first chapter reviews the construction and status of Pacific Alliance, later in the second we develop an analysis of this process from different considerations that according to the authors make the PA a particular case.

 

KEYWORDS

 

Pacific Alliance - Economic integration - Trade Policy

 

 

BACKGROUND

 

The need to address the economic and trade challenges through coordinated strategies amongst economies and in particular with the emergence of Asia Pacific led to the creation in 2007 of the Pacific Basin Initiative. This process was composed of the Latin American countries bordering the Pacific, Chile, Colombia, Costa Rica, Ecuador, El Salvador, Guatemala, Honduras, Mexico, Nicaragua, Panama and Peru, with the aim of creating "a platform for policy dialogue and coordinate projection of the countries of the Latin American Pacific Basin to the Pacific Asia region encouraging the incorporation of the private sector" (BCN, 2008).

 

This initiative was stalled by the lack of progress of the integration process and the differences in trade policy orientation among members. According to Kahhat (2011), of the 11 countries only four members remained as Ecuador and Nicaragua decided to shift their trade policy to Venezuela and join the Bolivarian Alternative for the Americas (ALBA). Alongside, the Central American countries of the Northern Triangle had an internal process sufficiently complex in view of its relationship with the United States (U.S.) and the signing of CAFTA-DR.

 

The Pacific Alliance (PA) emerges in response to the failure of Pacific Basin Initiative as a proposal by former Peruvian President Alan Garcia, to form an area of deep integration in Latin America that could link political, economic and trade processes in the region. Its members, Chile, Colombia, Peru and Mexico, defined that they had to progressive advance towards the free movement of goods, services, capitals and people, while favouring integration as an instrument to promote growth, development and competitiveness of their economies. Thus, the Alliance seeks to settle on a projection platform to the Asia Pacific basin, through the development of coordinated actions among its members, such as the creation of a free trade area, the promotion of investment between the parties, trade facilitation and cooperation in various fields between the authorities involved.

 

The first Summit of the Pacific Alliance was held in Lima in April 2011, with the participation of the four founding members and Panama as an observer. At its launch, Garcia declared "this is not a romantic integration, a poetic integration is a realistic integration to the world and towards the world" (Semana, 2011). The objectives established were (1) build, in a participatory and consensus manner, an area of deep integration to move progressively towards the free movement of goods, services, capital and people, (2) promote further growth, development and competitiveness of the economies of the Parties, with a view to achieving greater well-being, overcoming socioeconomic inequality and social inclusion of its inhabitants, and (3) become a platform of political articulation, economic and trade integration and outreach to the world, with special emphasis on Asia-Pacific. Participants at the Summit established working groups, priorities and generate instruction to generate a "Framework Agreement on the basis of homologation of existing free trade agreements" (Pacific Alliance, 2011).

 

As of June 2013, seven presidential summits have been conducted, in which the presidents of the member countries have followed the progress of the working groups, as well as incorporated new elements to the negotiating agenda (Table 1). Political commitment of PA member countries is reflected in that in less than three years ten meetings at the level of Ministers of Foreign Affairs and Trade and thirteen of the High Level Group composed of the vice ministers of trade have also been conducted. The main Alliance milestone was the signing of the Framework Agreement on the IV Summit in Paranal, Chile, in June 2012. In July 2013, Mexico, Chile and Peru have already deposited the instruments of ratification of the Agreement.1

 



Table 1. Pacific Alliance Summits

Summit

Location / Date

Themes / negotiation

Agreements

I Summit

Lima, Peru

28/04/2011

 

Framework Agreement on the basis of homologation of existing free trade agreements.

Movement of people.

Trade and integration.

Services and capital.

Cooperation and dispute settlement.

Physical and electrical interconnection.

Establishment of the Pacific Alliance

Invitation to Panama as an observer.

Formation of the High Level Group (HLG).

II Summit

Merida, Mexico

4/12/2011

 

Ecommerce.

Technical barriers to trade.

Electronic origin certification.

Authorized economic Operators.

Interoperability of single windows.

Start of tariffs negotiations.

Origin accumulation mechanism.

Student mobility platform.

Memorandum of Understanding on Pacific Cooperation Platform.

Joint Committee for the promotion of trade in services and investment.

 

 

Summit III

Virtual

05/03/2012

Reviewed and highlighted the negotiation progress.

Invitation to Costa Rica as an observer.

IV Summit

Paranal, Chile

06/06/2012

 

Reviewed and highlighted the negotiation progress.

Institutional Issues Technical Group.

Joint activities in the cultural field.

Joint Committee on Services and Investment.

Signing of Framework Agreement.

V Summit

Cadiz, Spain

17/11/2012

 

Reviewed and highlighted the negotiation progress.

Investment Agreement.

Agreement on Border Trade in Services.

Chapter of government procurement.

Abolition of visas for Mexico to

Colombia and Peru.

Business Council of the Pacific Alliance.

Australia, Canada, Spain, New Zealand and Uruguay are incorporated as observer members.

Summit VI

Santiago, Chile

27/01/2013

Reviewed and highlighted the negotiation progress.

Japan and Guatemala are incorporated as observer members.

Summit VII

Cali, Colombia

23/05/2013

 

Reviewed and highlighted the negotiation progress.

Agreement on Regulatory Reform.

Pacific Alliance Visa.

Open joint embassy in Ghana.

Chapter on Trade Facilitation and Customs Cooperation.

Pacific Partnership Cooperation Fund.

Guidelines for Accession to the Pacific Alliance.

Ecuador, El Salvador, France, Honduras, Paraguay, Portugal and the Dominican Republic are incorporated as observer members.

Source: Compiled by the authors.

 

At an institutional level, and from the provisions of the Framework Agreement, the principal organ of the Alliance is the Council of Ministers, which adopts decisions to fulfil the goals and specific actions of the Framework Agreement and the presidential statements issued. To follow up on negotiation issues, a High Level Group (HLG) was established, consisting of vice ministers of foreign trade and a pro tempore presidency with annual rotation.

 

Recognizing the existence of preferential trade agreements in force between the countries (Table 2), the primary objective of the Alliance is the homologation of those agreements, and from this starting point, deepen the commitments and include new subjects (Table 1). Therefore, the first term is negotiating chapters on the movement of goods, services and capital needed to eliminate all barriers to trade and through the origin accumulation allow "greater economic integration and trade between the signatory countries through a larger number of suppliers of local inputs" (Pacific Alliance, 2013). In July 2013, this negotiation is still on-going, despite the original schedule delay, is expected to achieve an agreement that meets the expectations it has generated. Negotiators have agreed to liberalize automatically at least 90% of the products, leaving the rest in 3 and 7 years lists and some sensitive products, such as bananas or cocoa, in longer tariff schedules, but always in mind to finalize the negotiation without exclusions.

 

Table 2. Bilateral PTA Pacific Alliance

 

Colombia

Mexico

Peru


Chile

May 8, 2009

July 31, 1999

March 1, 2009


Colombia

 

January 1, 1995

May 26, 1969


Mexico

 

 

February 1, 2012


Source: Compiled by the authors.


 

But pragmatism of the Alliance has led to the establishment of agreements and implementation of various cooperation programs between countries, without the need to incorporate them into a single package. Thus, while negotiations continue in traditional issues, various projects have begun to strengthen the integration process: there are now protocols on Export Promotion, Tourism and Academic Cooperation. As a sign of commitment to the PA, Mexico abolished the visa for Colombia and Peru2 to strengthen the movement of people.

 

One of the most interesting aspects of cooperation launched is the coordination between the four trade promotion agencies of the Pacific Alliance (Proméxico, PromPerú, ProChile and Proexport). On February 8, 2012, a declaration to "join forces and promote exports, investment and tourism in these four countries" was signed (Pacific Alliance, 2013). The first lines of work were agreed, including:

 

  1. Exchange of business information between the countries of the PA.

  2. Macro business fairs of the Pacific Alliance.  

  3. Opening of joint office abroad.

  4. Joint participation in international fairs.

  5. Seminar or investment opportunities in the Pacific Alliance.

 

In September 2012, the first joint office was opened in Istanbul, Turkey, and in June 2013 there was the first Macro Business Fair in Cali, Colombia. Also a series of meetings in different countries of Asia and Europe to jointly develop business opportunities and promote investment in the second half of 2013 have been scheduled. On tourism, on August 28, 2012, the Agreement of Tourism Cooperation was signed, and exists today in the negotiating agenda the intention to create a "Pacific Alliance Visa" allowing foreigners visitors to visit easily the region.

 

Finally, the Pacific Alliance Business Council was established, with the aim of promoting the Pacific Alliance, make recommendations and suggestions for better integration and to promote joint actions to third markets, particularly in Asia Pacific.

 

From the review of the negotiating agendas, as well as progress in these, it is possible to identify:

 

(i)The strategy of consistency and strengthening economic models of liberalization which the signatory countries chose, as they are facing an impasse in the multilateral trading system and questioning towards liberalization policies;

(ii)Search by these countries of a scheme that serves to shelter from the imminent European crisis, that to a greater or lesser extent will impact these economies, as well as the uncertain status of the United States, and the latest results of China;

(iii)Join to differentiate of other initiatives such as Mercosur or ALBA, a strategy in which Mexico debates the positioning in the region with Brazil;

(iv)Another attempt to diversify away from U.S. hegemony on its exports, particularly in the case of Mexico;

(v)The objective in order to be part of chains that add value and improve their integration and dependence on international markets.

 

The Alliance has generated great expectations, both within states parties, and the international community. The presence in Cali (Colombia) on the occasion of the VII Summit of the Pacific Alliance, in addition to the four members from nine "observers" countries with high-level representatives, has been considered as a demonstration that "is a process that is drawing international attention" (Peña, 2013). This wake-up call that internationally generates the PA, which to date has twenty observer countries3. The construction of the process from existing treaties and the incorporation of new themes have described it as an innovative initiative in the region. "This group is not a rhetorical forum rather commonplace in the region: is backed by treaties, for now especially free trade and investment protection. The agreements respond to state policies, which have remained despite changes of governments, and agree on the benefits of exchange freedom, free movement of people, capital, goods and services, and the use of the possibilities of business and collaboration in the Pacific Rim "(El Mercurio, 2013).

 

CONSIDERATIONS

 

This section identifies a number of considerations whose aim is to identify those characteristics that distinguish the Pacific Alliance as a trade integration process. Literature and empiric experiences review indicate some conditions that cause a higher probability of success in an integration scheme, those that opt for a higher survival over time. These conditions are contrasted in light of what today is known of the Pacific Alliance, without losing sight that it is in a construction phase and that such schemes do not necessarily culminates with its neglect but result in a loss of relevance.

 

The region has a large number of experiences regarding integration -LAFTA, LAIA, SICA, Andean Pact - Andean Community, MERCOSUR, UNASUR or CELAC- some active and some surviving into irrelevance. Taking into account these considerations we intend to have some ideas that would help to answer the question that has been raised by Peña (2013), which arises whenever an integration process initiates: what are the factors that enable sustained over time the political will of a group of sovereign nations to work together in the field of an integration process intended to be permanent?

 

With respect to the PA, The Economist (2013) points out that beyond all, it seems to be a more functional arrangement that ethereal classical Latin American rhetoric. Worth mentioning that the need for this process and the way it may have still have a high dose of scepticism. In addition to the high expectations that tend to arise with the launch of an international integration agreement, particularly in our region, most ends up frustrated.

 

For the analysis of the Alliance, considerations have been grouped into six categories according to the criteria explained in Table 3.

 

Table 3. Characterization considerations

Consideration

Characteristics

Politic

Those that allow us to identify the commitment level commitment and leadership from the member countries. Understanding the political scenario and definitions in this area that each of the parties involved have and their relationships with third parties to enable their similarities and convergence spaces. Analysing the relationship between the negotiators or a more operative implementation and policy decision making.

 

Economic - trade

Those linked on one side to the weight of the financial commitments that the scheme has, on the other, the amount of resources used and the flexibility with which they are dispose for success and completion of objectives, which in turn enable sustainability time in commitments. Analysed as a relevant consideration trade aspects are included, with what level of depth and clarity in the disciplines, scope and design of instruments.

 

Structural and institutional

Those that identify the deadlines, transparency, scope, flexibility, responsiveness and allow us to identify concerning formal and informal structures of the agreement. This means the organizations involved, the equipment, different levels of coordination, standards and legislation.

 

International

Those that relate to the commitments and international actions that Member countries have acquired in preferential trade agreements or multilateral level in the context of the World Trade Organization.

 

Public - private

Those that analyse and understand the level of involvement, overlapping, competition and cooperation that exists on the relevance and potential of different integration schemes. Identify the role of the private sector's participation in design and implementation, understanding those cooperative and competitive strategies with the public sector and with other levels involved in the process.

 

Social and cultural

Those related, firstly, to the legitimization process, transparency, involvement of society in its creation and development. On the other, to the clauses and elements which in itself have a social or cultural nature are explicitly included in the design of the regulatory framework.

 

Source: Compiled by the authors.

 

Political considerations

 

One success factor of an integration process is the political commitment of the States concerned, to be able to transcend administrations and possible changes in government. Many initiatives are born with great excitement, but as governments rotate the initial backup begins to deteriorate.

 

The PA began as an initiative of the President of Peru, Alan Garcia, who soon gave the command to Ollanta Humala, considered close to Venezuelan President Hugo Chavez, and therefore according to the first analysis less prone to an initiative of this magnitude. However, Humala continued the work left by Garcia, maintaining the commitment of Peru with respect to international economic integration and the Pacific Alliance. Though in his inaugural speech to the presidency in July 2011, President Humala does not explicitly refer to the Alliance (as he did regarding CAN and UNASUR), he made clear the commitment to trade integration policy: "We don´t wish an autarkic economy, that looks to itself, isolated from the globalization process. We, rather want, an integrated economy. Integrated, first, to the region and, in particular, with Andean and South American neighbours "(Humala, 2011). His participation in the Presidential Summits of the PA, and the inclusion of the Alliance in the messages to the Nation in 2012 and 2013 reinforce the commitment that Peru has with this project. "In this sense, one of the most successful platforms for the projection of our interests is the Pacific Alliance, under which we are negotiating with Colombia, Chile, Mexico and Peru free circulation of goods, services, capital and persons. This projection is directed to consolidate the presence of Peru in the world, open markets and attract investment" (Humala, 2013).

 

Something similar happened in Mexico in 2012, when President Felipe Calderon of the National Action Party (PAN) considered conservative right-handed, gave office to Enrique Peña Nieto, a member of the Institutional Revolutionary Party (PRI). While continuity of trade policy was not a particular issue of concern, the high-level political commitment remained. President of Mexico, Enrique Peña Nieto, said the Alliance members share "a vision in favour of the rule of law and of democracy, and believe that with free trade we can find greater competitiveness for our people."

 

This marks a similarity between them, as noted by Oppenheimer (2013): the unrestricted commitment to their development strategy and a distance from countries like Venezuela and Argentina. The greater indication of the PA has been the strong political will countries have been reflected in the Framework Agreement, as noted by one document of the Mexican Economy Secretariat: "More than legal enforceable commitments, the agreement proposes objectives and expresses the willingness to work together, setting the institutional framework for doing so."4

 

Economic and trade considerations

 

The possibility of achieving better economic and especially productive connectivity is a determining factor in the development and future of the Alliance. The four members have defined as trade policy strategy an opening and deep integration with the world orientation (Table 4).

 

Table 4. Trade and economic indicators Pacific Alliance countries

 

Opening Index

2012

Exports (USD) 2012 * 2011

Imports

(USD) 2012 * 2011

Bound tariff (average single) 2010

Tariff (avg. single) 2010

Chile

66.5%

$ 78,276,984,123

$ 79,445,153,487

25%

4.8%

Colombia

37.8%

$ 56,273,841,186 *

$ 53,171,738,046 *

43%

11.2%

Mexico

69.5%

$ 370,826,830,786

$ 370,746,056,121

35%

7.4%

Peru

50.2%

$ 45,636,085,458 *

$ 37,747,091,790 *

30%

4.8%

Source: Compiled by the authors using data from WITS.

 

 

Economic and trade considerations can be seen in a number of concrete actions and in progress as:

  • The execution of funds for specific activities reveals longer-term commitment, as share trade offices or embassies.

  • The issue of convergence of their agreements has started working on the harmonization of bilateral treaties, which according to Estevadeordal seem to be taking over the problem of the spaghetti bowl.

  • The signing of agreements, tariff preferences and the creation of trade disciplines may not fully meet their objectives if there is no expedited commercial traffic between countries. The materialized trade facilitation chapter means a change in the rules and commitments and better customs transit; the interconnection and interoperability of Foreign Trade Single Windows in each of the countries that will led in the medium term for digital origin and health certificates, are strategies in the same direction.

 

For Estevadeordal (2013) the PA has clear incentives to develop physical hardware integration, such as ports and transport. This approach coupled with the Alliance member countries priority of participation in higher production linkages between them especially since the amounts traded between their economies are still low (Table 5).

 

Table 5. Intra Pacific Alliance Trade 2012 (USD)

 

 

Imports

 

 

Chile

Colombia

Mexico

Peru

Exports

Chile

 

$ 913,921,267

$ 1,346,224,071

$ 1,812,783,857

Colombia

$ 2,184,752,172

 

$ 877,071,625

$ 1,462,004,847 *

Mexico

$ 2,607,576,030

$ 5,592,878,402

 

$ 1,527,759,867

Peru

$ 2,072,360,545

$ 1,042,324,558 *

$ 439,972,915

 

*: Data 2011 Source: Authors' COMTRADE data.

 

Structural and institutional considerations

 

The Alliance arises from the need to adapt a project and make a new one to respond to business functionality that was needed to strengthen the region's relations with Asia, which has been identified by Members as a potential for their economies. In this sense, part of a successful policy is closely linked to the ability to adapt the original project to changes in the domestic economic, political conditions and the external environment; this means a high degree of flexibility and adaptability in shaping their strategies (Peña, 2013; Rodrik, 2010).

 

A second consideration regarding operating and action structures, in the case of the Alliance we could define it for how simple and targeted towards its business objectives is that what exists in other integration processes such as Mercosur, which define more complex institutions and greater demands prior to the implementation of economic and trade strategies.

 

As regards the legal institutions, i.e. rules of the game, the PA seems to outline certain characteristics that suggest they are defined in the service of objectives explicitly mentioned in the agreement. To allow us to measure them according to their effectiveness, which are structured more concrete facts as the resolution of open joint office for trade promotion institutions such as ProExport, ProChile Proinversion PromPerú and ProMéxico, to strengthen actions to promoting goods and services, attracting investment, just as attempts to deepen the exploration of new regions for the opening of new promotional representation offices.

 

The PA seems to define more specific deadlines and areas, and also has been more transparent in its acts and goals so far. Nor has developed large and ambitious regulatory and institutional frameworks unlike other integration schemes that aims certainly are not as commercial as the Alliance.

 

International Considerations

 

The state of trade negotiations under the World Trade Organization, the impasse in the Doha Round since 2011, and scepticism in the future of the multilateral system has encouraged countries and particularly those most committed to opening address to sign agreements to liberalize trade and strengthen their economic policy option. The division in the orientation of trade policy in Latin America is evident in agreements such as the Alliance, which generates a kind of solidarity not only in the model, but in acting towards integration and in particular trade topics.

 

As cross consideration, countries have signed bilateral trade agreements as seen in Table 2, which significantly facilitates the possibility of consolidating the Alliance, as an initiated path already exists, for which so far there are no plans to build Europe, but demonstrates a consistent interest in the trade aspects, as identified in economic and trade considerations. Moreover, each country has an extensive network of trade agreements, including the U.S., EU and Asian countries, reinforcing the strategy and the development model they have chosen.

 

The various agreements not only among Members also where they participates either alone or together such as the TPP, APEC and WTO are forums where their positions have been reflected and could continue to increased their support. The TPP, Trans-Pacific Strategic Economic Partnership Agreement, is an example of this process at this time and perhaps one of the most important in the trade arena. This agreement aims to define a new way of approaching how to structure economic relations between countries. The presence of different partners such as the United States in this process, reinforces the sense of progress in the context of the PA for the four countries whose levels of development are more symmetrical as their business strategies.

 

New issues such as climate change and energy resources will soon be discussed in these forums. The members of the PA should share their concerns and apprehensions in these issues, taking shared positions in issues such as environmental taxes or carbon traceability that will impact heavily their exports because of its relative remoteness from the global economic centres and as its dependence on foreign energy resources.

 

Public-private considerations

 

"State action can not be fully understood without considering the context of cooperation with the private sector. As in the classic relationship building, development strategies are designed and produced from a joint effort with private actors, in that sense, this is not a state employer, nor a subsidiary, but cooperating" (Lopez & Muñoz, 2013).

 

Private sectors represented by the Business Council of the Pacific Alliance, have played a pivotal role in defining the priorities of the Alliance, this defines the functionality with which the integration mechanism has shifted.

 

An private initiative to be highlighted is the recent integration of the stock exchanges markets of Chile, Colombia and Peru. The Integrated Latin American Market (MILA), which began operations in 2011, and is expected to transform into a major stock markets in the region after Sao Paulo and Mexico, which again calls for the similarities between the countries.

 

Social and Cultural Considerations

 

The Alliance provides social objectives although they, educational and cultural, are obviously part of the background with respect to what are business strategies and economic integration.

 

Yet it is essential the social legitimacy that the agreement can gain Peña (2013) stated the "ability to see, through the process of rules production, social interests of all member countries reflecting a dynamic perception of mutual gains." Thus Kahn (2013) notes that it is possible to conclude with a high degree of certainty as from the beginning excellent marketing tool have been used for the PA, also there is a broad domestic consensus, despite the observed in Colombia, with respect to trade positioning in the members.

 

In particular, a topic which is of fundamental importance for the countries that have not achieved significant progress in the region is the movement of people. Since November 2012, Mexico abolished the visa requirement for nationals of Colombia and Peru traveling for tourism to that country. Peru also announced the exemption of business visa for entrepreneurs from Colombia and Mexico. It was also agreed to create the "Pacific Alliance Visa" for tourists from third countries to visit any of the four member countries of the Alliance. These though are very minor changes in terms of thinking about the free movement of people; the PA has addressed the issue with definitions.

 

In 2012 the Pacific Alliance Cooperation Fund worked, and in 2013 began the academic cooperation program with the delivery of the first hundred student mobility grants among member countries. While this initiative may be small in magnitude, reaffirms the commitment for concrete actions and future actions to build social and cultural integration.

 

 

REFERENCES



1 Formality to deliver the ratification of the country which acts as depositary, in this case Colombia.

2 Removal of visa Visitors Not Allowed to engage in gainful activity up to 180 days to nationals of Colombia and Peru to travel to Mexico.

3 Costa Rica, Panama, Canada, Uruguay, Australia, New Zealand, Spain, Guatemala, Japan, France, Portugal, Honduras, Dominican Republic, El Salvador, Ecuador, Paraguay, Turkey, Korea, China and the United States.

4 Pacific Alliance Framework Agreement. Available at: http://www.sre.gob.mx/images/stories/informe/anexos/Anexo_22.pdf

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