Enabling Trade in the Pacific Alliance:
The Pacific Alliance initiative is moving progressively and pragmatically towards the free movement of goods, services, capital and people among its members, effectively creating a market of 200 million people with a combined GDP of nearly US$ 2 trillion (35% of Latin America’s total).1
The initiative has already demonstrated significant progress towards the economic integration sought by member countries. As of the end of 2013, member countries had agreed to lift tariffs on over 90%2 of traded goods and restated their commitment towards establishing a comprehensive free trade zone. Visa requirements for Pacific Alliance citizens have been eliminated; the four countries (Chile, Colombia, Mexico and Peru) have opened joint export promotion offices; scholarships have been set up to promote student exchanges; and a cooperation fund has been established and funded.
Despite this progress, unresolved non-tariff barriers to trade are seriously hindering the full potential of the initiative, both internally and in terms of the region’s outward-facing competitiveness. To make best use of their productive strengths, Alliance members hope to reinforce their use of and contribution to distributed value chains. This requires the reduction of barriers to the movement of intermediary components and raw materials (see the Box for more details on the Pacific Alliance).
This study combines a review of the potential for integrating production in the region with a targeted survey of regional businesses (conducted by the Integration and Trade Sector of the IDB, in collaboration with private-sector associations in the four member countries3) and a selection of illustrative case studies. These initial findings will be supplemented by additional survey responses in coming months, as well as focus group discussions with regional companies. The resulting picture of challenges and potential solutions will be provided in a final report prior to the World Economic Forum on Latin America in Panama City, Panama on 1-3 April 2014.
Box: Key Facts and Structures of the Pacific Alliance4
The Pacific Alliance, formally created in June 2012, is made up of four member countries: Chile, Colombia, Mexico and Peru. These members have been outperforming their Latin American peers since 2009 on several macroeconomic metrics (e.g. GDP growth, level of investment, unemployment, inflation), driving economic leadership in the region. More than 20 other countries are admitted as observers and two of them, Costa Rica and Panama, have requested to be admitted as full members.
The vision for the Alliance has progressed from simply creating a free trade zone to more ambitious objectives, including deep economic integration to enhance free movement of goods, services, capital and people; economic development; and promotion of well-being and trade integration platform setup with a special pivot to Asia-Pacific, one of the region’s main trading partners.
The Alliance has put in place four layers of discussion forums. The first layer consists of the summits, during which decisions are made and summit agendas are defined. The second, a ministry council made up of the ministers of foreign affairs and foreign trade of each member state, makes decisions on implementation of the objectives and specific actions detailed in the Framework Agreement and the Alliance’s presidential declarations. The High Level Group is the third layer, in charge of monitoring progress on the Alliance’s priorities which are spread across the fourth and last layer of the technical groups (e.g. trade and integration, population transit). Moreover, the Alliance has created a “business council” organization, led by the private sector, whose role is to promote the Alliance within each of its member countries, make suggestions and recommendations to accelerate the integration process, and promote joint actions towards other markets, particularly the Asia-Pacific region.