The Pacific Alliance a New Center of Gravity in Hemispheric Trade
By Eric Farnsworth, on , Briefing
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| Los presidentes. |
In the intervening decade, China’s economic boom and a resulting secular shift in global commodities markets has been a key driver of regional growth, particularly in South America, obviating the need and reducing the desire of many of the leaders to take politically difficult decisions on trade expansion. When times are good, there is less impetus for reform. Recent estimates by the International Monetary Fund, however, indicate that China’s slowing growth and softening commodities markets will put pressure on commodities-dependent economies in Latin America. Countries will increasingly need to identify new engines of growth, built on innovation, structural reforms and productivity gains.
The four nations of the Pacific Alliance—and perhaps more in the near future, including Costa Rica, Panama and others—recognize that, by linking their economies more closely together with other like-minded nations based on affinity rather than geography, they can move quickly to build economies of scale, more-efficient supply chains and national competitiveness. Furthermore, they recognize that they can move faster by themselves than they have been able to do awaiting engagement by a heretofore disinterested United States or a Brazil intent on building its own regional political project.
The Pacific Alliance as it currently exists represents some 215 million people and almost 40 percent of regional GDP, making it an economic power in its own right. More importantly, it includes the most economically dynamic countries in the region, each of which views the world in broadly similar terms. As a result, concrete progress is being made, and the prognosis for further progress is very good. In Cali, the leaders agreed on the elimination of 90 percent of their tariffs on each other’s goods, and also on a plan to eliminate the remaining 10 percent in the medium term. They are moving toward full labor mobility and financial integration, two significant advances that are unheard of in most trade negotiations given overwhelming political sensitivities in each sector. The idea is to create a meaningful economic agenda, including all of the factors of production, and thus to create a model of a high-standard, 21st-century trade agreement that moves beyond rhetoric to realization.
The momentum that the Pacific Alliance has developed in the short time since it was launched in 2011, and the concrete provisions that have already been agreed upon, are attracting notice from outside Latin America. Observers in Cali included the leaders of Canada, Japan and Spain. Australia, Guatemala, New Zealand, Uruguay and the Association of Southeast Asian Nations are also observers. Others requesting such status include China, Paraguay and the United States, which did so during the recent visit by Vice President Joe Biden to Colombia.
The alliance is consequently emerging as a factor in regional trade discussions, one the United States should view with favor and even with strategic interest. The establishment of a new center of gravity in hemispheric trade that includes those nations willing and capable of working with the United States and motivated to play a constructive role creates an important opportunity to build a region-wide movement toward open markets that develops organically.
The alliance may also provide a way to reorient regional summitry back to its original focus. For instance, by holding a joint summit among North American and Pacific Alliance leaders, and inviting special guests including leaders from Central America, Paraguay and Uruguay, the hemisphere could at once give renewed emphasis to a regional trade agenda to fill the vacuum created by the collapse of the FTAA.
With creativity and political leadership, the Pacific Alliance could also become a partner with North America on the pan-Pacific economic integration agenda. Coupled with hoped-for Colombian entry into the ongoing negotiations for the Trans-Pacific Partnership, and also with potential if not yet pending invitations to Mexico and Canada to join U.S. trade negotiations with Europe, the Pacific Alliance could well be the push that positions the willing and able partners of the Western Hemisphere for an enhanced position in the global economy.
At the same time, the alliance also has political implications. Given the membership requirement for democratic governance, including the separation of powers, the alliance will reinforce the better habits of its partners while implicitly rejecting the populist authoritarianism of the ALBA alliance and sympathizer nations. At some point, were the Pacific Alliance to take on an explicitly political role, it could also be a significant voice in proactively reinforcing the norms and requirements of hemispheric democratic governance, human rights and fundamental liberties including freedom of speech and assembly. It also contrasts favorably with Mercosur and the Brazil-led model of hemispheric trade that is a competing vision for the political economy of Latin America.
The early success of the Pacific Alliance shows that leadership in hemispheric trade is not coming solely from Washington, Brasilia or even Geneva. It is coming from Bogota, Lima, Mexico City and Santiago. That is something that should be recognized by Washington and applauded. The creation of the Pacific Alliance offers ample room for cooperation and, beyond that, mutual gain and reward.
Eric Farnsworth heads the Washington office of the Americas Society/Council of the Americas, whose Energy Action Group promotes sound energy policies for the Western Hemisphere. During the Clinton administration, he was the senior adviser to the White House special envoy for the Americas
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