New APEC Trans-Pacific Partnership - Spanning the Pacific Ocean from Coast to Coast

APEC meeting to discuss the Trans-Pacific Partnership Agreement

The Asia-Pacific Economic Cooperation (APEC) Economy Leaders gathered in Hawaii for the final APEC Leader's Summit on 12-13 November 2011 of the US Presidency. The aim of the 21 member APEC forum is to lower trade barriers and increase economic cooperation in the Asia-Pacific region. At the Summit, APEC leaders pledged to work together to achieve the broad outlines of a plan that could work as the model of a new Trans-Pacific free trade zone, spanning the Pacific Ocean from coast to coast, known as the Trans-Pacific Partnership (TPP). 

The proposed free trade zone could serve as a model not only for the region but in light of the failure of the latest Doha Round negotiations, it could also serve as a model for other global trade pacts. The current Trans-Pacific Partnership members include Chile, Brunei, New Zealand and Singapore, with America, Australia, Japan, Malaysia, Perú, and Vietnam already in negotiations to join. Canada, México and Colombia are also considering joining.

The US President, Barack Obama, has said publicly that he hopes the Trans-Pacific Partnership will be the cornerstone of an APEC-wide free-trade area. In a similar statement, the Chinese President, Hu Jintao, too said that China supported the proposal for an APEC-wide free trade area from coast to coast in the Asia-Pacific Region.

Many of the smaller Trans-Pacific Partnership countries welcome Japan’s participation for the access it would give them to a second giant market, alongside America’s. The treaty’s ambitions are for free movement of almost everything with the exception of labour. Japan hopes to influence global technological standards in industries like electric cars and clean energy by joining with the US. 

US and China - both part of the Asia-Pacific Region

By agreeing to open negotiations to join the Trans-Pacific Partnership, the US President is clearly seeking to re-establish the US as a Pacific nation. The Trans-Pacific Partnership is a symbol of the shift in the world’s centre of economic gravity from the Atlantic to the Pacific Ocean. If the ten-country deal is concluded, it will cover a market 40pc bigger than the European Union.

The US and Asia-Pacific countries need to maintain productive relationships with China, especially over the coming years 2012-2013, while China prepares for an internal leadership change within the Communist Party and at the same times goes through a period of introspection about its future role in the world. It is important that the US re-engagement is not seen as a path to confrontation with China. Rather, how China emerges from this process and the policies it chooses to implement in the Asia-Pacific region and globally will determine much about what the world will look like in the medium and long term.

The InterOceanic Highway between Brazil and Perú connecting the Atlantic and Pacific Oceans

InterOceanic Highway between Perú and Brazil that connects the Atlantic
and Pacific Oceans



The InterOceanic Highway (Carretera Interoceánica is the official Spanish name and Estrada do Pacífico is the Brasilian name) will have a total distance by road of 5440kms from the Atlantic to the Pacific.

The road is one of the biggest construction projects ever undertaken in América Latina. The highest point is 4850m or 42m higher than Mont Blanc, Europe's highest mountain. Twenty two bridges are being built including a spectacular new bridge of 722m across the Madre de Dios River at Puerto Maldonado in Perú.



 The InterOceanic Highway got off the ground due to the support from three Presidents Lula da Silva (Brazil), Alan García (Perú) and Evo Morales (Bolivia). All were key supporters of the project through which they sought the further integration and development of the three countries: Brazil – the giant of América Latina with its huge area of the Amazon, Perú with its Pacific coast and also with more than half its land area in the Amazon and the land-locked Bolivia with massive energy resources in need of infrastructure to transport them to the sea ports.

Over 4650km are complete and fully asphalt covered. Work is progressing on the final section 736kms from the Amazon basin and over the Andes mountains. The cost has been budgeted at 1.3 billion dollars.

The InterOceanic Highway will open up the Pacific Ocean to Brazil and Bolivia. It will connect América Latina's biggest mega-city São Paulo with Perú's three ports on the Pacific Coast; San Juan, Mataraní and Ilo. América Latina has benefited from the boom in the world price for mineral resources. Perú is the world’s largest silver producer, second largest producer in copper and zinc and sixth in gold.

Peru has advanced considerably over the last five years. Since 2006 growth has accelerated, averaging 7% despite the world recession. The share of Peruvians living in poverty has fallen from 49% in 2004 to 35% in 2009. Social indicators have improved immensely - between 2005 and 2010 Perú climbed 24 places in the United Nations Human Development Report.

Much of the Pacific coast, where farmers export asparagus, grapes and other products enjoys almost full employment in 2011. Though many parts of the Andean highlands remain poor, the arrival of the InterOceanic Highway has cut journey times meaning that many farmers there too have joined the export boom. Much of this succes is due to the vision of outgoing Peruvian President Alan García and his predecessor Alejandro Toledo. Both pursued policies of price stability, fiscal rigour, foreign investment, open trade and investment in major civil works infrastructure.

Perhaps Alan García's vision for Perú and América Latina is best summed up in his own words:

"We will be a first-world country soon, but we need to keep the goal in sight, and the goal is work, effort, execution of public works. We don’t live on words, we don’t live on promises, we live on concrete works.”

Unfortunately Alan García was not able to choose a sucessor in the same way that Brazil’s Luiz Inácio Lula da Silva and Colombia’s Álvaro Uribe had managed to do in 2010. His party, did not even have a candiate in the first round of presidential elections held in April 2011. None of the three centrist moderate candidates made it to the second round of voting on 5 June 2011. Instead the Peruvian electorate was presented with Ollanta Humala, an ex-army officer with affiliatons with Hugo Chavéz and Keiko Fujimori, the daughter of the former president now serving a 25 year prison term for human rights abuses. Ollanta Humala, prevailed by a narrow 3% margen with a manifesto programme that looks unlikely to deliver the growth rates needed to continue to lift peruvians out of poverty and at best reads like a recipe of missed opportunities for the next five years.

América Latina – an Atlantic Side and a Pacific Side



 

América Latina with the Atlantic Ocean to the right and the Pacific Ocean to the left



The Atlantic Side

Latin America is a Continent that straddles the two big oceans of the world – the Atlantic and the Pacific. In the past two decades, the Atlantic side has led on regional integration initiatives. In the 1990s, Brazil and Argentina forged Mercosur, a four country group together with Uruguay and Paraguay. Mercosur was based on a vision of free trade and a quest to expand markets.

Talks even began for an even grander project to create a 34-country free trade area of the Americas. But free trade was not to the liking of the left-wing governments that came to power over the last decade. The former Brazilian President, Lula da Silva, ended the talks for the Americas Free Trade Area preferring a much scaled back forum for political cooperation known as the South American Union (UNASUL in Portuguese) which he sponsored.

Meanwhile Hugo Chavéz, Venezuela's president, formed ALBA, an anti-US bloc, with Cuba and Bolivia and other allies. Up until now, Latin America has seen endless talk of regional integration, but it has all added up to rather less action.

The Pacific Side

But in the 21st century, in May 2011, the Pacific facing countries Chile, Colombia and Perú are about to embark on a new Pacific Integration project that returns to the free trade vision of the 1990s. It is based on a growing affinity between the Pacific countries who are keen on using market economies, foreign investment and trade with Asia to achieve development.

After two years of negotiation, the Integrated Latin American Market or in Spanish, Mercado Integrado Latinoaméricano (MILA) is about to be born. It will mean that traders on the stock markets of Chile, Colombia and Perú will be able to buy and sell shares of companies listed on the other two. Operations of a joint stock market linking Chile, Colombia and Perú are scheduled to begin on 30 May 2011.

The new Integrated Latin American Bolsa (Stock Market) will have a market capitalisation of over $600 billion making it the second biggest after Brazil's BM&FBovespa. It will mark a new closeness in economic relations between these three Pacific Latin American countries and will be one of the first steps towards their aspiration to form a common market.

The idea of a new Pacific Common Market project was launched by Peruvian President Alan García, in 2010. At Chile's request, the original three countries will be joined by México at a series of meetings over the coming year aimed at exploring deeper economic integration with each other. All these countries already have free trade agreements with the others (except México and Perú, which are now negotiating one).

Chile, Perú and México are members of the Asia-Pacific Economic Cooperation organisation (APEC) which Colombia would also like to join.



Map of Asia-Pacific Economic Cooperation (APEC) members


Chile and Perú also have free trade agreements with China. The idea is that Chile, Colombia, Perú and perhaps México will join together to bundle products for export to achieve the scale that importers in China are looking for.

The three Pacific countries already trade closely together. For example, Chile's LAN airline has its main Latin American hub in Lima, Peru. Chilean retailers too have invested heavily in Perú and are now looking to Colombia. And Colombia already manages much of Perú's electricity grids. Through the new deeper Pacific integration, Colombia would like to integrate the electricity grids from México to Chile and to build the missing links.

What does the future hold

If the Pacific Countries economic integration precedes as planned, the Pacific side of Latin America could form an alternative pole of attraction to Brazil. The MILA stock market might also attract foreign investors looking for an alternative to Brazil's over brought markets. Recently, Brazil has shown more interest in becoming a global power than in deepening Latin American integration. So if the Pacific side project takes off, it may become attractive to other mid-sized Atlantic countries too. Eventually, the Pacific Integration Project could team up with the stock market of Brazil to become a big player on the world financial scene as a joint Latin American Bolsa.

Latin American governments have failed to advance the cause of integration despite much talk at regional summits. Maybe the Pacific region's stock exchanges will be able to start doing what politicians have failed to do for so many years. Whatever happens the Pacific side of Latin America looks set to play a prominent role in the 21st century.