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Latin American Bloc Pursues Free Trade, Plans Deeper Integration

Friday, May 24, 2013
Sandler, Travis & Rosenberg Trade Report

The Pacific Alliance, a group formally established in 2012 in an effort to deepen regional trade and economic cooperation, was expected to sign May 23 an agreement to eliminate tariffs on 90% of the goods traded among member countries. Duties on the remaining 10% would be phased out over the next ten years.

But the founding members – Chile, Colombia, Mexico and Peru – intend the alliance to be more than just a free trade area. “When we are done we are going to have a trading zone similar to the European Union in which goods and services, people and capital can move freely,” an International Trade Daily article quoted Peruvian trade minister Jose Luis Silva as saying. Colombian President Juan Manuel Santos added that the alliance could be “the most important integration project in the history of Latin America.” Members already have taken steps to link their stock markets, eliminate business visas and set up joint trade promotion offices abroad. Further initiatives under discussion include harmonizing tax systems and coordinating “single window” trade systems.

The fact that the bloc has already accomplished more than some other regional groupings that have been around longer is likely one of the primary reasons so many other countries have expressed an interest in joining. Costa Rica and Panama are hoping to formally join this year; Japan, Guatemala, Australia and New Zealand are participating as observers; and El Salvador and the Dominican Republic have requested observer status. Canada, which already has FTAs with all four alliance members and is involved with three of them in the Trans-Pacific Partnership negotiations, is strongly considering whether to apply for full membership. At the same time, a Canadian Press article states, current members are evaluating “if Canada is serious enough about economic integration to at least partly let go of its trade and investment restrictions and its visa requirements.” The alliance is also reportedly discussing whether to allow membership for countries that don’t border on the Pacific Ocean, such as Uruguay and Paraguay (which have expressed frustration at times with the other major South American trade bloc of which they are members, Mercosur), France, Spain and Portugal, all of which have requested or been granted observer status.

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