The Alianza del Pacífico signs a historic agreement

Alianza del Pacífico countries in blue and observer states in brown

The Alianza del Pacífico agreement signed on 10  February 2014 aims to eliminate most trade and non-trade barriers between Perú, Chile, Colombia and México and also improve the mobility of capital and people. It will also reduce members’ export dependence on single goods (in the cases of Peru, Chile and Colombia) or single markets (as in the case of Mexico), and will create economies of scale that will make it easier to compete with Asian markets.

The Landmark agreement

The landmark framework agreement covers a wide range of topics, ranging from the elimination of trade and non-trade barriers on 92pc of the goods traded within the bloc to the adoption of measures to improve the mobility of capital and people. The countries making up the trade bloc have a combined population of over 210m people, a total GDP of US$2trn (and a per-head GDP in excess of US$10,000) and account for around 40pc of all foreign trade and inward foreign investment flows to the Américas (not including the US). The Alianza del Pacífico is due to increase shortly with Costa Rica just been accepted to begin the formal membership process.In addition, the Alianza del Pacífico’s goal of strengthening ties with the Asia-Pacific region means that a broader trade bloc in the Américas will join ongoing talks to create the Trans-Pacific Partnership (a free-trade area comprising Australia, Brunei, Chile, Canada, Japan, Malaysia, México, New Zealand, Perú, Singapore, the US and Vietnam). 

A massive opportunity

The recent agreement has been welcomed in the countries of the Alianza del Pacífico, where it as seen as a massive opportunity for achieving complementarities among its members. México is set to strengthen its intra-bloc exports of value-added manufactures, such as automobiles and metal-mechanics goods. Colombia is expected to benefit from increased exports of basic manufactures, such as processed foods, clothing and leather. And Chile and Perú are likely to boost their cross-border sales of agro-industrial goods. 

Furthermore, the Alianza del Pacífico constitutes an opportunity to build strong intra-bloc competitive advantages to penetrate Asian markets. This would be achieved through the creation of productive chains that generate economies of scale. According to a study by the Inter-American Development Bank (IDB), these chains could include the production of fibres and carpets by Perú and Chile; phosphates and detergents between Mexico and Perú; wood, paper and cardboard between Chile and Colombia; and chemicals and plastics between Colombia and México. 

But there will be challenges ahead

The Alianza del Pacífco’s success also hinges on its capacity to put in place accords in other, non-trade related areas. Progress has been made on the elimination of visas, the establishment of joint embassies in many Asian countries, and the subscription of agreements to promote education, tourism, small and medium enterprises and infrastructure investment. 

However, advances have been limited in more complex areas, such as the harmonisation of customs procedures, rules of origin and tax and financial sector regulation. The lack of progress in the latter two areas, for example, is delaying the implementation of the Mercado Integrado Latinoamericano (MILA, which aims to create a single stock market between Chile, Colombia and Perú and México).

Finally, although it is clear that the Alianza del Pacífico does not have political motivations, Mercosur comprised of Argentina, Brazil, Paraguay, Uruguay and Venezuela and the Alianza Bolivariana para los Pueblos de Nuestra America (ALBA) which includes Antigua and Barbuda, Bolivia, Cuba, Dominica, Ecuador, Nicaragua, St Vincent and the Grenadines and Venezuela are likely to see the recent advances as a threat to their political ideology and existence.

APEC Indonesia 2013

APEC Family Photo of Leaders

APEC continues to go from strength to strength, with an ever-expanding agenda, and an impressive share of the world economy held by its 21 members: this year, APEC accounts for 55pc of global GDP, 44pc of trade and 40pc of the world's people which shows just how dynamic and prosperous the region is becoming.

APEC's aim was never to be a negotiating forum. Its guiding principle is “concerted unilateralism”, that is, it has no power to force its members to do anything; it merely seeks to inspire good policy by example and co-ordination. This is where APEC's real accomplishment lies within a region not accustomed to working and coordinating together in a similar way to the the EU regional supranationalism integration. Instead APEC has developed many technical committees doing useful work in areas such as trade facilitation. It helps foster habits of consultation and co-operation. And, furthermore, its Leaders’ meetings provide an opportunity for useful and sometimes informal bilateral talks.

Since the Doha round of world-trade talks more or less came to a stand still with almost no hope of moving forward in the foreseeable future, APEC’s ambitions have spread into other areas. This year its motto is “resilient Asia-Pacific: Engine of Global Growth”, and its three main themes are the Bogor goals; improving “connectivity” (infrastructure, harmonising procedures and making it easier for people to travel); and “sustainable growth with equity”.

APEC's core interest has always been trade liberalisation. Twelve of its members (including two of the three biggest economies, the US and Japan, but not China) are pursuing the Trans-Pacific Partnership (TPP), an ambitious “21st-century” free-trade pact, covering areas such as labour, government procurement, state-owned enterprises, intellectual property and e-commerce, as well as traditional merchandise trade.

Meanwhile, eight TPP members (but not the US), along with four other APEC members (including China) as well as India and three other non-APEC countries are talking about yet another regional trade group, the Regional Comprehensive Economic Partnership.

The Latin American member economies, Chile, Perú and México are also pursuing the "Alianza del Pacífico" in the hope that a stronger regional alliance will give them more bargaining power in their trade relations with China. 

All, this adds up to a very dynamic Asia Pacific region. Hence a possible further grand aim for APEC over the next decade may be to try to co-ordinate these parallel processes, in the hope of bringing them all together in a grand Free Trade Area of the Asia-Pacific eventually. This is a role that APEC is well prepared for given its twenty or more years of existence across the Asia Pacific region and its technical expertise on trade liberalisation.

The Américas and China – Alianza del Pacífico

Map of Alianza del Pacífico

La Alianza del Pacífico (Pacific Alliance)

The four countries of the Alianza del Pacífico formally established in June 2011 - México, Colombia, Chile and Perú - together account for 35pc of GDP in América Latina, 50pc of exports from the continent and together their population exceeds 200 million people which gives them a similar magnitude of scale to Brazil (located on the Atlantic side). It also means a new model of regional integration focusing on strengthening institutions to create a regionally integrated trade area, oriented towards the free movement of goods, capital, services and people towards the key markets in ASEAN countries and China. México, by far the largest of the four countries sees an opportunity to diversify its exports from the US to Asia. Currently México sends around 77pc of its exports to the US. But there are considerable opportunities for México's Agricultural-food, footwear and textile sectors to export to Asia. Costa Rica attends the Alianza del Pacífico as an observer, and it is highly possible that it will seek to become a full member in the foreseeable future. Panamá too has expressed interest in joining. In the last 15 years or so in América Latina, several trading blocs have been established from MERCOSUR to ALBA, but the Alianza del Pacífico is different, it is the first to see itself as a truely regional integration project.

Xi Jin Ping's习近平 First Visit to the Américas

On his way back from a trip to the Américas, the new Chinese President Xi Jin ping 习近平 will meet US President Barack Obama, in California on 7-8 June 2013. But first President Xi Jin Ping 习近平will spend a week from 31 May to 6 June visiting México and Costa Rica. It is no coincidence that the Alianza del Pacífico decision to seek further regional integration was formally agreed ahead of Xi Jin Ping's 习近平visit. This visit will provide México's President with the possibility to begin to re-balance the trade relationship with China. Interestingly Xi Jin Ping 习近平will also visit Costa Rica (another potential member of the Alianza del Pacífico) as well as Trinidad and Tobago. The visit to Trinidad and Tobago is significant as it will be the first visit of a President of China to the English-speaking Caribbean. Costa Rica is China 's second largest trading partner in Central America while China is the second largest trading partner of Costa Rica. In recent years, bilateral trade between the two countries has grown rapidly. In June 2007, China and Costa Rica established diplomatic relations. In November 2008, Chinese President Hu Jintao visited Costa Rica and announced the launch of China-Costa Rica free trade negotiations. The China-Costa Rica free trade agreement (FTA) came into force on 1 August 2011. 

Finally, when Xi Jin Ping 习近平 meets the US President, the meeting will not take place in Washington or on the Atlantic coast, instead the symbolism of the meeting taking place in California could not be clearer, it highlights the increasing importance of the Pacific over the Atlantic.

Nicaragua's proposed new canal between the Atlantic and the Pacific

The Nicaraguan government has recently stated publicly that it would like to construct a new canal with links between the Atlantic (Caribbean coast) and the Pacific Ocean. It has already started working with a Chinese company on a canal construction project. 

Map of the Proposed Nicaragua Canal Route

The idea is that the Nicaraguan canal would not be in competition with the Panamá canal, which is currently undergoing full expansion, instead, the Nicaraguan project would be focussed on receiving vessels up to 250,000 metric tons, the locks would be 460 meters big with a capacity to take boats with a depth greater than 20 meters. 

Detailed Map of possible routes for the Nicaragua Canal

The exact route of the Nicaragua canal is still to be determined but some experts believe that the project could be developed using the recommended routes of a multidisciplinary study presented in 2006 by the then President Enrique Bolaños. This study recommended the canal be built on the Caribbean coast of Nicaragua, near Bluefields Bay City, and then go along rivers within Nicaraguan territory and then through the Great Lake of Nicaragua, over a distance of 280km.

This is a mammoth project that will require considerable investment not only to build the Canal, but also in construction of port infrastructure, railway infrastructure and potentially airport runways too. The Nicaraguan government sees the canal as a pipeline for oil crossing from the Caribbean Sea to the Pacific across to the markets in Asia but it will be used for all trade.The Geo-Trade Blog will continue to follow closely developments on the new canal. 

Most interestingly, this mega project adds more evidence that world focus is increasingly moving away from the Atlantic and the focus in the 21st Century is on building the infrastructure and diplomatic ties with the Pacific.