The Pacific Alliance, which brings together Chile, Colombia, Mexico and Peru, is overtaking other more longstanding alliances such as Mercosur and looks set to expand beyond its core territory.
The alliance, which was officially launched as a trading group in June 2012 at a presidential summit in Chile, has been called the “most dynamic integration process in Latin America”.
Eduardo Ferreyros, a former trade minister in Peru and now head of an exporters’ group, said it had done more in two years than Mercosur (the Southern Cone Common Market), had done in two decades.
Jorge Gerdau, chairman of the Brazilian steel Gerdau group, said Mercosur was at risk of losing its relevance, as Latin American countries on the Pacific coast moved towards integrating their economies in the global value chain.
He said Mercosur was not keeping up with the transition in the globalized world to expand partnerships. “We have had difficulties to cope with this very rapid change. Now we have to analyze what is going on in Mercosur so as not to lose this moment of integration within the ongoing globalization,” said Gerdau.
“The Pacific Alliance has been advancing in this direction, moving closer to the US and Europe. We have to be very careful not to miss this momentum.”
The alliance’s member presidents last month signed the group’s trade chapter, eliminating tariffs on more than 90% of goods.
The four countries together represent 36% of Latin America’s population, 26% of foreign direct investment to the region and around 50% of the region’s international trade flows.
The next phase for the alliance is a deal on financial integration and the long term goal is free movement of people, similar to the EU system.
The alliance is set to grow and there are calls for it to expand beyond the Latin America’s Pacific coast.
Costa Rica signalled last month it was in the final stages of meeting the requirements to join, which includes having a free-trade agreement with existing members. The Costa Rican legislature is expected to ratify the country’s free-trade agreement with Colombia in early April.
Other strong contenders for full membership are Panama and Guatemala. The four members would like to see Ecuador, which is one of 30 observers, join. It would mean that all of South America’s Pacific coast countries were part of one bloc.
“The Pacific Alliance is strong and growing stronger. I think Ecuador should be encouraged to join. Working with them on this should be a priority of the presidents,” said Gonzalo Priale, VP of Peru’s umbrella business association, Confiep.
Opinions are growing within both the Pacific Alliance and Mercosur for much stronger ties. Chilean Foreign Minister Heraldo Munoz, in an editorial in Spain’s El Pais in mid-March said the alliance “should discuss the possibility of materializing a convergence with Mercosur.”
Two of Mercosur’s members, Paraguay and Uruguay, are already observer members of the alliance.
Ramon Aracena, the chief economist of the Institute of International Finance (IIF), said the most important thing in the Pacific Alliance “is convergence of [market friendly] policies, which are driven by business interests. That is critical. Mercosur has been around for a while. But is not yet a trade bloc, it is rather a customs unions... It is much more politically driven.”