With Mercosur, the four-nation Common Market of the South, virtually paralyzed by internal divisions, another regional coalition of Latin American countries has launched an offensive to integrate their trade and investments with Asian markets. The presidents of Mexico, Colombia, Peru, and Chile, the founding members of the Pacific Alliance, a regional free trade area established last summer, met in Cali, Colombia, this week to formalize their bid to make Latin America a partner in the Asian century that is emerging with the growth of China, Japan, and South Korea.
President Juan Manuel Santos of Colombia, who assumed the rotating presidency of the group for the next six months, said in an interview with El Tiempo that Colombia, together with Chile, Peru, and Mexico, the other founding members, are “countries with which we share the same convictions in democracy, in the benefits of free trade, in foreign investment, in private property, and in stable rules of the game.”
Although Santos said the alliance was not designed to be a rival to Mercosur, his list of convictions that underlie the alliance stood in stark contrast to the protectionism, statist economic intervention, economic disorder, and political authoritarianism that is present in Mercosur, where Argentina, Brazil, and Uruguay have welcomed Venezuela as a new member. The political divisions in Latin America are manifest in the differences between the two regional groups (see “Fractured Continent,” from the May/June 2013 issue of World Affairs).
The new regional group has a total population of 210 million people, a little more than Brazil, and a collective gross national product that makes the Pacific Alliance the eighth-largest economy in the world. By removing trade tariffs within the region, it has become inviting to non-regional foreign investors. This interest was shown in Cali by the presence of prime ministers like Stephen Harper of Canada and Mariano Rajoy of Spain. Other Latin American countries, particularly Central American, as well as Paraguay, which suffered suspension from Mercosur on political grounds last year, are also interested in joining the alliance. The United States regards the alliance with silent approval.
What this means for Latin America’s global relations will be tested by how the Asian economies respond. Japan, South Korea, Australia, Indonesia, and Thailand have already indicated they want to negotiate free trade agreements with the alliance. China is already a major trading partner with all the alliance members, but this interaction in commodity exports, like metals, oil, and food from the alliance, in exchange for Chinese manufactured products has not translated yet into major Chinese investments. The larger regional market of the alliance free trade area will certainly attract more interest from foreign investors because of increased scale.
There have been rumors in the past about Chinese interest in a possible new inter-oceanic canal through Colombia to provide a modern alternative to the Panama Canal. This is the kind of major infrastructure project that the visionaries of the Pacific Alliance see as their stepping stone into the Asian Pacific century.
Photo Credit: ESO