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Free trade supporters are cheering the Pacific Alliance and it is easy to understand why. Comprised of Mexico, Colombia, Peru and Chile, the bloc accounts for more than a third of Latin America’s gross domestic product and has moved quickly on a path to integrate their economies since it was formally established 20 months ago. Last week they agreed to remove trade tariffs on 92 per cent of their goods and services. The concrete results reflect refreshing pragmatism, and for this reason the Alliance should be applauded.
Nearly a decade after the idea of a Free Trade Area of the Americas (ALCA) died, one can sense renewed hope that, at least for some countries, trade liberalization is coming back.
Others have taken notice and are eager to join the club. Costa Rican president Laura Chinchilla was with Sebastian Pinera, Ollanta Humala, Juan Manuel Santos and Enrique Pena Nieto at the recent Alliance meeting and signed a declaration of intent to become a member. Panama is waiting in line, and Guatemala is also keen. Even Mercosur members Paraguay and Uruguay don’t want to be left out.
Although the Alliance holds great promise, enthusiasm should be tempered. The history of the ups and downs of other integration schemes – MERCOSUR, for example – is instructive. Initial optimism and dynamism too often have given way to disappointment and stagnation.
What makes the Alliance seem especially attractive today is the contrast with some other countries in the region. Brazil’s economy is sluggish, and the government now seems ambivalent about any move towards greater opening. Most dramatic are Venezuela and Argentina, both in deep crisis and whose policies have been the antithesis of those embraced by the Alliance.
Yet, although the Alliance holds great promise, enthusiasm should be tempered. The history of the ups and downs of other integration schemes – MERCOSUR, for example – is instructive. Initial optimism and dynamism too often have given way to disappointment and stagnation.
Concerns and risks on both external and internal fronts could affect the Alliance’s continued advances. The global economy is uncertain, with signs of possibly greater turbulence. China’s economy is slowing down, with reduced demand for commodities. A decade marked by Latin America’s favorable terms of trade, which benefited export-driven Alliance members, has ended. The region is entering a new period.
Internally as well there are challenges, both economic and political. Progress in competitiveness and productivity – reflected in infrastructure and education – has been too slow and uneven. Strides on these scores would make trade deals more effective.
Political problems also stand in the way of realizing the Alliance’s full potential. Progress so far has been tied to the political will of like-minded presidents. But eroding political support at home can complicate matters. All Alliance leaders will need to have enough political strength to mobilize public opinion to sustain the integration effort.
Another relevant question is the position that will be taken by Chile’s president-elect Michelle Bachelet. Though committed to the Alliance, Bachelet is likely to move closer to Brazil and perhaps a bit more distant from the Pacific bloc. Her government will resist any attempt to portray the Alliance as an ideological counterweight to ALBA. It is not clear how the new stance will affect the bloc’s dynamics.
