It has been called the most ambitious trade initiative since NAFTA. When the Pacific Alliance was launched, two years ago, the four member countries already enjoyed free-trade agreements among themselves. So, naturally, some questioned the objective of the Alliance.
The Pacific Alliance is the agreement between Colombia, Chile, Mexico and Peru to modernise and further integrate their economies. Its goal is to create a deeply integrated area that will foster growth, development and competitiveness for the member countries by achieving the free movement of goods, services, capital and people.
Although the countries’ leaders have emphasised that the Pacific Alliance is not a political bloc, they have also stated that they all share a commitment to strong democracies with independent branches of government, the rule of law, open trade and full protection for foreign investment.
To achieve a deeper economic integration, the countries agreed to speed up the elimination of tariffs for 92 percent of goods traded and committed to eliminating tariffs on the remaining 8 percent of goods in 12 years. To further promote the free movement of people, Mexico eliminated the visa requirement it was imposing on travellers from Colombia and Peru.
To facilitate capital integration, Chile, Colombia and Peru created MILA (Mercado Integrado Latinoamericano), which effectively integrates their stock markets, allowing a national investor to acquire securities from the others. Mexico is expected to join MILA later this year. Alliance members have also agreed to share space for new embassies in several third countries and are co-ordinating their trade-promotion agencies.
The GDP of the four Pacific Alliance countries accounts for 35 percent of the total for Latin America and the Caribbean. That is the equivalent of the eighth largest economy in the world. And all four economies are healthy. With an average growth of more than 5 percent, an unemployment rate of 5.8 percent and an average inflation rate of 3.8 percent, the macroeconomic fundamentals of the bloc are solid.
For Canada, the Pacific Alliance is a priority. Having already signed free-trade agreements with the four member countries and having significant Canadian investment in all of them makes the alliance worthy of special attention. Canadian companies are present in the Alliance in many sectors, including banking, mining, oil and gas, services and green technology. Further, as the four countries share strong commitments to democracy and the protection of human rights, the alliance seems to be a natural fit with Canadian objectives.
Prime Minister Stephen Harper has attended several Pacific Alliance summits as an observer and has pledged to foster co-operation with the bloc.
The leaders of the Pacific Alliance are fully aware of the many broken promises of real economic integration in Latin America over the past 30 years. Consequently, its goals are deliberately specific and limited. There are no grand plans to establish a common currency or a large bureaucracy and trade disputes will be settled by the World Trade Organisation.
Fully convinced of the need to have foreign investment to achieve higher economic growth, the Pacific Alliance fosters a legal environment that is favourable and attractive for business and foreign capital. All four countries received record foreign direct investment this year, totalling more than $71 billion U.S.
Interestingly, the economic conglomerates from the member countries are also expanding within the Alliance and abroad. Between 2009 and 2012, Pacific Alliance members invested a total of $135 billion U.S. around the world.
The Alliance has spurred wide interest globally. In a little more than two years, 30 countries have asked to become observers. Costa Rica and Panama have formally requested membership.
A key characteristic of the Alliance has been the determination to engage the private sector in the integration process. At every summit of the leaders of the Alliance, there is a simultaneous business forum involving hundreds of business leaders from the region. A group of CEOs is responsible for summarising the forum’s conclusions and presenting a report and recommendations for trade facilitation directly to the presidents of the member countries.
How can Canada further its integration with the Pacific Alliance? With respect to trade and investment, it is doing what it should, including promoting trade missions and supporting Canadian business participation in large infrastructure projects. Another course of action would be to explore a closer relationship between the Toronto Stock Exchange and the stock exchanges of Colombia, Chile, Mexico and Peru.
On the sensitive issue of facilitating the movement of people, Canada can certainly do more to show the members of the Alliance that it wishes to move forward without endangering its security. The visa questionnaire Canada requires from visitors is not only much more burdensome than that required by the United States or the EU (Schengen), it is also unnecessarily intrusive. Despite claims by Canada of improved times for granting of visas, Pacific Alliance travellers say they experience long delays. The current system discourages many travellers from these countries from visiting Canada for business or pleasure. Today it is much easier for them to visit the U.S. or to travel there on business.
In fact, it is precisely by having its security and migratory agencies working closely together and building shared databases that Alliance members have been able to eliminate visa requirements amongst themselves. Further, the Alliance members’ close work with American migration authorities has facilitated the travel of their citizens to the United States. Early this year, the U.S. eliminated the visa requirement for Chile. Were Canada to present a road map for intensifying security co-operation and eliminating visas for Alliance members, much would be achieved.
Nicolas Lloreda is ambassador of Colombia. Colombia has chaired the Pacific Alliance for the past year. Mexico takes over the one-year chairmanship in July.