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  Félix Peña

INTERNATIONAL TRADE RELATIONS NEWSLETTER
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MERCOSUR AND THE ALLIANCE OF THE PACIFIC: THEIR ROLE IN LATIN AMERICAN REGIONAL INTEGRATION
¿Are they opposed or can they be complementary?

by Félix Peña
June 2013

English translation: Isabel Romero Carranza

 

 

Drawing the international attention -and that of the own public opinion- is a common occurrence in the founding moments of the integration processes between nations. However, over time, the expectations generated with the launch of an integration agreement, at least among Latin American countries, have generally resulted in frustration. The curve towards disenchantment not necessarily culminates with the respective process being abandoned but mostly results in the loss of the significance that was attributed to it in the founding moment.
Hence the importance of the question: What are the factors that enable to sustain over time the political will of a group of sovereign nations to associate with a long-term purpose in the context of an integration?

Beyond the initial excitement, that now seems evident in the participating countries and in others that aspire to participate, even just as observers, the question that arises then is how sustainable over time will be the process of 'deep integration' channeled by the so- called 'Alliance of the Pacific'. It involves questioning whether it will transcend its undeniable current impact as a successful exercise in 'media diplomacy'. Perhaps, it may be too early to attempt to answer such a complex question. We will have to wait and see the specific commitments that are assumed for the development of the framework agreement signed in 2012.

An issue to follow up closely will be the relations that are built between the preferential spaces of the Alliance of the Pacific and of Mercosur. It is a matter of economic interest as well as geopolitical connotations. It should be noted that the relations of countries of the Alliance of the Pacific with Mercosur countries and especially with Argentina and Brazil are very close and transcend trade. Hence the importance of formulating the question of whether if between both spaces there will be complementation or, on the contrary, if contradicting views will prevail.

This is a question that will take time to get an answer based on solid arguments and not just emotional ones. Among other reasons, time will be necessary in order to have a clearer idea of which are the commitments that are finally translated into the space of the Alliance of the Pacific and to be able to appreciate the true scope of the current 'metamorphosis' of Mercosur, especially those resulting from changes in its membership, the convenience of capitalizing on the gained experience and from its adaptation to national, regional and global realities very different from those of its founding moment.



The presence in Cali, Colombia, on occasion of the VII Summit of the Alliance of the Pacific (23 May, 2013), in addition to the four members (Colombia, Chile, Peru and Mexico), of nine 'observer' countries with high-level representation has been considered a demonstration that this is 'a process that is drawing international attention' (on this regard see the informative paper by the Ministry of Trade, Industry and Tourism of Colombia entitled 'ABC resultados de la VII Cumbre de la Alianza del Pacífico", on https://www.mincomercio.gov.co/; see also the document '30 Preguntas sobre la Alianza del Pacífico' published on http://www.europarl.europa.eu/).

Drawing the international attention -and that of the own public opinion- is a common occurrence in the founding moments of the integration processes between nations. For example, it happened in 1969 with the signing of the Agreement of Cartagena (Colombia), which was the result of a very strong involvement of the then presidents of Chile, Eduardo Frei Montalva, and Colombia, Carlos Lleras Restrepo. In its initial stage and for some years the so-called Andean Group managed to concentrate much international attention, especially when it adopted, in December 1970, its foreign investment regime, known as Decision N° 24 (see among other publications the article by Ernesto Tironi, entitled 'La Decisión 24 sobre capitales extranjeros en el Grupo Andino" on http://www.revistaei.uchile.cl/). Then, the decline began with the withdrawal of Chile. After the transformation into the Andean Community of Nations (CAN) the original enthusiasm was gradually eroded. However, Colombia and Peru, both participants in the Pacific Alliance, still remain members of the CAN (on its current activities see http://www.comunidadandina.org/ and on trade between its partners and with third countries in 2012 see http://estadisticas.comunidadandina.org/).

The high expectations that are normally generated by the launch of and international integration agreement between Latin American countries have usually led to frustrations, sometimes very difficult to overcome. Something like this happened over fifty years ago with the launch of the Latin American Free Trade Association (LAFTA), then replaced in 1980 by the Latin American Integration Association (LAIA). The curve towards disenchantment not necessarily culminates with the abandonment of the respective project but it results in a loss of the relevance which was attributed to it at the founding moment

Thence the current relevance of the question: What are the factors that enable to sustain over time the political will of a group of sovereign nations to work together within the scope of an integration process intended to be permanent? From the different Latin American experiences, including of course Mercosur -which is also currently going through a period where different sectors of the member countries are manifesting their frustrations-, there seems to be three factors to consider carefully. One of them is the ability to adapt the original integration project to the frequent changes in the political and economic conditions of the member countries but also in the external environment, both regional and global. Another factor is the density and quality of the economic and, above all, productive connectivity that is developed as a result of the commitments made in the framework of the integration process. And the third factor, strongly linked to the previous one, is the quality of the ground rules as measured by their effectiveness (their ability to penetrate reality), their efficacy (their ability to produce the results that gave rise to them) and their social legitimacy (their ability to take into account, thanks to the process of rule creation, the social interests of all member countries, reflecting thus a dynamic picture of perception of mutual gains). Without the concurrence of these three factors it is difficult for a voluntary process of integration -in the sense of systematic joint work between sovereign nations- to last in time, at least without undergoing profound changes.

Beyond the initial enthusiasm that now seems evident in the participating countries and in others that aspire to have some kind of connection, even just as observers, the question that arises then is how sustainable over time will be the process of 'deep integration' channeled by the so called 'Alliance of the Pacific'. That is, whether it will transcend its unquestionable current impact as a successful exercise in 'media diplomacy', understood as that which allows its protagonists to gain space for a while in the media.

Perhaps, it may be too early to attempt to answer such a complex question. So far, what is evident is the strong political will that the participating countries have evinced through a so-called 'framework agreement' signed on occasion of the Summit of Paranal, in Antofagasta, Chile, on June 6, 2012. More than enforceable legal commitments, this agreement proposes objectives and expresses the willingness to work together, setting the institutional framework for doing so (see the text on http://www.sre.gob.mx/). No wonder it has been made clear that the Framework Agreement is not a Free Trade Agreement (FTA): 'It is a regulation by which the Pacific Alliance is created. It defines its goals and the actions to be developed in order to reach these objectives; it establishes its ruling bodies and the nature of the instruments that are adopted within it; it allows the possibility of observer states; regulates the accession of new states and the way in which it may be amended; and sets rules about its entry into force and duration'. So what is the difference with an FTA then?: 'In that it does not impose any obligations for the members of the Alliance in matters related to the trade of goods and services; investments; the movement of people; government procurement and dispute settlement; issues that are currently being negotiated through the relevant technical groups created for this purpose under the guidance of the High Level Group (HLG) formed by the Vice Ministers of Trade and Foreign Affairs of the four countries. Once their negotiation is finished these obligations will be brought to Congress as a package to be submitted for legislative approval' (on this regard, see the original Spanish informative document quoted above on https://www.mincomercio.gov.co/).

The objectives laid down on the framework agreement are broad and ambitious. Hence the expression of 'deep integration' that evokes the idea of going beyond what are the simple free trade agreements. A central aspect in order to appreciate how far they are willing and able to advance will be most certainly that of reciprocal trade liberalization, at least if we take into account the approach that seems to predominate in building this Alliance. In this regard, what was agreed in the Summit of Cali -as per the final statement- is that: 'in matters of tariff deductions, the total elimination of tariffs was defined for the tariff universe. Also, it was decided that the common 90% of that universe will have zero tariff once the agreement comes into force and that the remaining 10% will be deducted as agreed between the Parties'. It also points out that they agreed to: "conclude the tariff negotiation for the universe of goods to achieve complete tariff relief within a reasonable time and also, to finalize the texts of the Chapter on Access to Markets'. According to the aforementioned briefing paper (the original version is in Spanish and has been translated for this Newsletter), originated in the Ministry of Commerce, Industry and Tourism of the government of Colombia, whatever is agreed will be included in an additional protocol to the Framework Agreement. It would become effective upon ratification by the four countries. As is often the case, this could take some time to materialize.

The member countries of the Alliance are already linked with each other by preferential agreements concluded in the framework of the LAIA (see the respective texts including the additional protocols and tariff reduction commitments on http://www.aladi.org/). So only when concluding the ongoing work to implement what was announced in the Summit of Cali, we will be able to appreciate what is the actual additional value of what is agreed in terms of tariff deductions, sensitivity and exceptions, and safety valves with regard to what is currently valid between the different pairs of members. It remains to be seen also if the existing agreements are connected together, including their respective updates or if, on the contrary, they are inserted into a new single partial extent agreement within the scope of the LAIA. It will also be interesting to see what progress is made in the matter of accumulation of rules of origin. It is not a minor detail to take into account that the four countries have concluded preferential agreements with the US and the EU. And three of them -Chile, Mexico and Peru- are taking part of the ongoing negotiations to establish the Trans-Pacific Partnership (TPP). This is not a minor fact either.

But taking into account the objectives of the partners it will be essential to examine the real extent of the actual commitments that are adopted in other areas and, especially, in terms of the different regulatory frameworks, of services and investments, even of intellectual property and public procurement. These, together with tariff reductions, the elimination of non-tariff barriers, rules of origin and, among others, of trade facilitation may have more impact on the idea of turning the Pacific Alliance into a space for the development of productive chains especially aimed at making the most of the mega- preferential interregional trade agreements -the mentioned TPP and also the Transatlantic Trade and Investment Partnership (TATIP)-, which would connect this area of the Latin American Pacific with Asia Pacific, North America and also the European space. Could this be the real reason behind this new alliance?

Another issue to monitor closely is that of the relationships that are built between the Latin American preferential spaces: the Alliance of the Pacific and Mercosur. It is a matter of economic interest but also with strong geopolitical connotations. It should be noted that for several countries in the Alliance of the Pacific relations at all levels with Mercosur countries, but especially with Argentina and Brazil, are very close and transcend trade.

Hence, the importance of raising the question of whether these two regional preferential spaces will complement each other or if, by the contrary, contradictory views will prevail. This is a question that has been raised by some newspaper comments published on occasion of the Summit of Cali (see for example that by Andrés Oppenheimer, entitled 'Alliance of the Pacific vs. Mercosur', published in El Nuevo Herald of May 25, on http://www.elnuevoherald.com/; and that of The Economist of 18 May, 2013, entitled 'Latin American Geo-economics. A continental divide. The region is falling in behind two alternative blocks: the market-led Pacific Alliance and the more statist Mercosur"). And this is a question that will take time to get an answer based on solid arguments and not only ideological or emotional ones. Among other reasons, time will be necessary in order to have a clearer idea of what are the commitments that are eventually manifested in the space of the Pacific Alliance and to appreciate the true scope of the present 'metamorphosis' of Mercosur, resulting especially from changes in its membership, the convenience of capitalizing on the experience gained since its creation, and its recommendable adaptation to national, regional and global realities different from those of the time of its creation.

The Alliance of the Pacific would be the equivalent of a house to be built. The willingness to do so exists and the plans are being discussed. The actual construction will begin later, which in turn may be impacted by the dynamics of change of the external environment. Mercosur is also the equivalent of a house under construction -the current experience of the EU shows that this is a constant reality of voluntary integration processes among sovereign nations- but it already needs to be expanded and adjusted to the new realities of its owners and the environment in which they operate.

Both constructions are developed in the broader institutional frameworks that exist in the region. All of them aim to ensure regional governance -in terms of peace and political stability- and not only in the economic aspect. These are, in particular, the frameworks of the LAIA and UNASUR - and to some extent also that of the CELAC-. Additionally, there are also regional institutions such as the ECLAC and the CAF-Development Bank of Latin America, that can play a very useful role in facilitating the articulation between both integration processes.

How to get both processes to complement each other, generating a convergence of development and commercial policies and achieving a growing articulation of transnational value chains? This is perhaps the central question on which to base the work between Mercosur and the Pacific Alliance from now on, while maximizing the installed capacity within the scope of the regional institutions mentioned above.


Recommended Reading:


  • ADB, "Beyond Factory Asia. Fuelling Growth in a Changing World", Asian Development Bank, Manila, April 2013, en: http://www.adb.org/.
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  • CEPAL, "La Inversión Extranjera Directa en América Latina y el Caribe-2012", CEPAL-Naciones Unidas, Santiago de Chile 2013, en: http://www.eclac.org/.
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  • Peterli Guimaraes, Edson; Zeidan, Rodrigo M., "Acordos do Mercosul com Terceiros Países", Documentos IPEA/CEPAL, Textos para Discussâo, n° 23, Brasilia 2010, en: http://www.iadb.org/.
  • Sader, Emir (organização), "Lula e Dilma. 10 Anos de Governos Pós-Neoliberais no Brasil", Boitempo Editorial - FLACSO Brasil, São Paulo 2013.
  • Schellekens, Philip, "A Changing China: Implications for Developing Countries", The World Bank, Economic Premise, Number 118, Washington, May 2013, en: http://siteresources.worldbank.org/.
  • Sica, Dante, "La estratégia nacional exportadora de Brasil", Boletín Informativo Techint número 340, Buenos Aires, Enero-Abril 2013, en: http://www.boletintechint.com/boin/.
  • Thorstensen, Vera; Machado Oliveira, Ivan Thiago (organizadores), "Os BRICS na OMC. Políticas Comerciais Comparadas de Brasil, Rússia, Índia, China e África do Sul", IPEA, Brasília 2012, en: http://www.ipea.gov.br/
  • UNCTAD, "Reform of Investor-State Dispute Settlement: In Search of a RoadMap", UNCTAD, IIA Issues Note, N° 2, Geneva, May 2013, en: http://unctad.org/.

Félix Peña Director of the Institute of International Trade at the ICBC Foundation. Director of the Masters Degree in International Trade Relations at Tres de Febrero National University (UNTREF). Member of the Executive Committee of the Argentine Council for International Relations (CARI). Member of the Evian Group Brains Trust. More information.

http://www.felixpena.com.ar | info@felixpena.com.ar


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