The growing Pacific Alliance - The Economist

WORDS such as exciting, inspiring and intriguing are not often used to describe free-trade agreements, but they are being tossed around liberally in Latin America in a growing number of countries with Pacific coastlines.

The buzz is about the Pacific Alliance, formed last June, which links Chile, Colombia, Mexico and Peru. Trade between the four countries already flows smoothly, thanks to bilateral agreements that were in place before the new tie-up. Now finance ministers who met on April 25th in Lima, Peru’s capital, want much more, as do a growing number of countries knocking on the door to join.

The Pacific Alliance is “the most exciting thing going on today in Latin America,” according to Felipe Larraín, Chile’s finance minister. At the Lima meeting Mr Larraín and the other ministers agreed to look at options for joint policies to deal with increasing capital flows and appreciating currencies, a result of quantitative easing in the European Union, United States and, most recently, Japan. Mr Larraín said that everything would be on the table, even the possibility of capital controls, “although I know that they are the wrong way to go.”

Peru’s finance minister, Luis Miguel Castilla, said that member countries were also looking for ways to harmonise trade mechanisms, specifically “single window” policies, which bring under one roof all steps related to moving goods. One possible model is Chile’s recently implemented Integrated System for Foreign Trade, which will be used for all exports by the end of the year and, the government hopes, cover all imports by March 2014. Mr Castilla said that the Alliance’s four member-countries wanted to “integrate our export systems to make trade more fluid.”

Also on the agenda is accelerating Mexico’s entry into the Integrated Latin American Market (MILA), which tied up the stock exchanges of Chile, Colombia and Peru when it was established in 2011. Financial reforms introduced by Mexico’s President Enrique Peña Nieto should speed up the process. MILA is already the second-largest bourse in the region after Brazil, and will become the largest when Mexico joins.

The presidents of the Pacific Alliance countries are due to meet towards the end of May in Cali, Colombia, where they will be joined by leaders of other countries looking to join the Alliance. The most likely candidates for immediate admission are Costa Rica and Panama, which have “observer-candidate” status. Anabel González, Costa Rica’s trade minister, has high hopes that her country will join the Alliance, which she calls “inspiring”, as early as the May meeting. Costa Rica’s Congress approved a free-trade agreement with Peru in April and the details of a forthcoming trade deal with Colombia have just been agreed. The main condition for a country to join the Pacific Alliance is having bilateral trade pacts in place will all member countries.

Also attending the Colombia meeting will be Stephen Harper, Canada’s prime minister. Canada is already an observer; joining the Pacific Alliance later this year is a major trade objective of his government. Other observer countries include Australia, Guatemala, New Zealand and Uruguay (which will not get any further than observer status, as it is not on the Pacific). Peru’s President Ollanta Humala has invited Indonesia to join as an observer.

Members would like to see the United States sign up sooner rather than later, as part of a broader goal of creating a free-trade area of all countries in the Americas with a Pacific coast. The United States currently has free-trade agreements with every country on the Pacific except Ecuador. Francisco Sánchez, the United States’ deputy secretary of commerce, said that his department was “intrigued” by the Alliance but that no decision had yet been made about joining.

Ms González of Costa Rica said that the Alliance could be a stepping-stone for small countries such as hers to integrate faster into other multilateral agreements, such as the Trans-Pacific Partnership (TPP), another free-trade deal. The TPP includes 11 countries—Australia, Brunei, Chile, Canada, Malaysia, Mexico, New Zealand, Peru, Singapore, the United States and Vietnam—and Japan has received approval to join. A new round of negotiations will get under way in Lima on May 15th. As such clubs’ membership grow, so should trade.