Nov. 14 – As ASEAN countries continue to move towards regional integration by 2015, a new economic bloc consisting of Latin America’s fastest growing economies may be the key to trade between the two regions.
Establishing a framework for trade and economic integration, the Pacific Alliance (Alianza del Pacifico) was established in June 2012 by the presidents of Chile, Colombia, Peru, and Mexico. Born from the previous failures to integrate Latin America’s most open and dynamic economies, the members of the Pacific Alliance account for over 50 percent of the region’s external trade, and 35 percent of its GDP. Taken together, the Pacific Alliance is the world’s ninth-largest economy.
Analysis of the Pacific Alliance by the Center for Strategic and International Studies (CSIS) suggests that with time, the Alliance may become a counterbalance or even alternative to the Trans-Pacific Partnership (TPP). As the TPP faces increased scrutiny this week after WikiLeaks released a controversial draft text of the TPP agreement, ASEAN countries may start giving the Pacific Alliance a second look.
According to the PEW Research Center, both legislators and citizens in several countries key to the TPP’s success – including the U.S., Canada, Japan, and Mexico – are becoming increasingly wary of free trade agreements, and could potentially stand in the way of the treaty’s ultimate ratification. U.S. intransigence on a number of key TPP details also has the potential to stoke longstanding political disagreements between prospective TPP member states.
Because the Pacific Alliance is not viewed by the U.S. government as a direct threat to the TPP, both the U.S. and ASEAN may be increasingly drawn towards the Alliance as they seek to hedge their bets for the future. Conversely, a Pacific Alliance deal with China or ASEAN could serve as a powerful incentive to force TPP ratification through the U.S. Senate.
Recent developments indicate that Pacific Alliance member states have their gaze firmly set upon Asian-Pacific and ASEAN economies.
Outside of the Pacific Alliance, Alliance member states already hold more trade agreements with Asian countries than with the rest of the Americas combined. According to the CSIS, “this preexisting base will make negotiation of the Alliance-ASEAN or other Alliance-Asian agreements easier – giving the group a clear advantage over the TPP.”
Furthermore, the existence of the ASEAN Secretariat and the Trade and Integration units of the Inter-American Development Bank mean both parties have neutral third-party institutions at their disposal to produce objective analyses of issues, and suggest paths towards compromise if an agreement is sought in the future.
Recently, South American leaders have not been shy about making clear the Alliance’s Asian ambitions.
At a recent Alliance meeting with Thailand over a prospective free-trade agreement, Colombian Ambassador to Thailand Andelfo Garcia said that “the Pacific Alliance is an ambitious initiative aimed at deepening the integration of the four South American countries involving the free movement of not just people, but capital, goods and services as well as investment. The Pacific Alliance also looks towards ASEAN countries, as we want the Pacific Ocean to be not a gap but a bridge between countries and economics across the two regions.”
Javier Becker, Chile’s Ambassador to Thailand, declared that “the Pacific Alliance wants to take advantage of the ASEAN economic community, which will be effective in 2015. Countries on both sides of the Pacific should be able to join. Thailand and other ASEAN countries should be able to export goods more easily to South America. For us, we expect to do the same to Asia. We’re talking about two big regional markets which are in the process of integration.”
At the May 2013 Pacific Alliance Summit, the number of observer countries more than doubled with Australia, Canada, Guatemala, Japan, New Zealand, Spain, and Uruguay being joined by the Dominican Republic, Ecuador, El Salvador, France, Honduras, Paraguay, and Portugal. While key ASEAN nations were notably absent from the Summit, a number of recent developments, including South Korea and China’s successful admission as observers to the Alliance, signal growing Asian interest. An invitation for ASEAN to become an official observer of the Pacific Alliance was received warmly, being labeled by Indonesia’s Trade Minister as “the next logical step” in their relationship.
With the future of the TPP far from certain, investors interested in the ASEAN and Asian-Pacific region should keep the Pacific Alliance in mind as a possible competitor or compliment to the TPP. Whatever happens, Latin American members of the Alliance are likely to continue forging stronger economic ties with their Asian partners well into the future.
Dezan Shira & Associates is a specialist foreign direct investment practice, providing corporate establishment, business advisory, tax advisory and compliance, accounting, payroll, due diligence and financial review services to multinationals investing in emerging Asia. Since its establishment in 1992, the firm has grown into one of Asia’s most versatile full-service consultancies with operational offices across China, Hong Kong, India, Singapore and Vietnam as well as liaison offices in Italy and the United States.
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