The Pacific Alliance (PA) is the latest addition to Latin American regional groupings that include MERCOSUR, Andean Community, ALBA and SICA. Comprising Mexico, Colombia, Peru and Chile, the PA is a vibrant, dynamic and ambitious group, while the other four blocs are struggling with internal political and economic difficulties.
The PA’s dynamism can be linked to the fact that the macroeconomic fundamentals of its members, dubbed the Pacific Pumas, are stronger and more solid than the other Latin American countries. They have higher growth with lower inflation, and projected to grow by 3% or more in 2015, while Latin America as a whole is expected to grow only by about 1%. The average inflation of the PA region is less than , which is half the annual Latin American inflation rate.
The policies and tax regimes of the PA countries are more stable, transparent and predictable, as well as investor-friendly. Unsurprisingly, the four countries lead the region in the World Bank’s ‘Ease of Doing Business’ survey of 2014. Their global rankings (Colombia-34, Peru-35, Mexico-39 and Chile-41) are way ahead of India’s lowly 142nd rank.
They have lower tariffs, more liberal foreign trade policies and among Latin American countries, they have signed the most free trade agreements (FTA). Chile has signed with 60 countries, Peru with 50, Mexico with 44, and Colombia 30. All four have FTAs with the U.S., as well as the European Union. Mexico, Peru and Chile are part of negotiations for the Trans-Pacific Partnership and Colombia is also keen to join. Chile and Peru have FTAs with China and Colombia has just announced its intention to negotiate a FTA with China.
India’s trade with the PA, which accounts for 40% of its trade with Latin America, has been growing rapidly, and has the potential to reach $30 billion in the next four years from $15 billion in 2014. Mexico, Colombia, Peru and Chile are the second, third, fourth and fifth largest destination of India’s exports in Latin America, after Brazil. Mexico and Colombia have become regular source of crude oil, while Chile and Peru are sources of copper and gold imports for India.
India’s private sector, and its public sector utility ONGC Videsh have recognised the lure of the large and growing market of the PA, which has a total population of 214 million, GDP of $2 trillion, trade of $1 trillion and average per capita GDP of $10,000. Accordingly, over 30 Indian companies have invested in the PA in areas such as IT, pharmaceuticals, energy, mining and manufacturing.
Ten companies from the PA have invested in India, most notably, the Aje Group from Peru which has successfully entered the soft drink market in India with its brand ‘Big Cola’.
How can India improve its partnership with the Pacific Alliance?
Signing FTAs with Mexico, Colombia and Peru will enable its exports to compete with those of the PA’s other FTA partner countries. India already has a PTA with Chile which is being widened and deepened. India should open a large line of credit of at least $500 million to the PA bloc to promote and facilitate investment and project exports of Indian companies. India has become an observer in the PA since February 2014. Using this status, India could engage with the group and consider participation in the next summit of the PA to be held in Peru this year.
While the group as a whole may not have direct lessons for India, it could learn from the Pact for Mexico under which a dozen major reforms have been brought about in the last two years under an unprecedented consensus between the ruling and the opposition parties. The success of Mexico in making itself as a manufacturing hub of the Americas can provide a template for the ‘Make in India’ campaign.
Ambassador Viswanathan is Distinguished Fellow, Latin America Studies, Gateway House. He is the former Indian Ambassador to Argentina, Uruguay, Paraguay and Venezuela, and Consul General in Sao Paulo.
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