The Pacific Alliance: A Trade Integration
Initiative in Latin America
M. Angeles Villarreal
Specialist in International Trade and Finance
October 2, 2014
Congressional Research Service
7-5700
www.crs.gov
R43748
The Pacific Al iance: A Trade Integration Initiative in Latin America
Summary
The Pacific Alliance is a regional integration initiative formed by Chile, Colombia, Mexico, and
Peru on April 28, 2011. Its main purpose is for members to form a regional trading bloc and forge
stronger economic ties with the Asia-Pacific region. Costa Rica and Panama are candidates to
become full members once they meet certain requirements. The United States joined the Alliance
as an observer on July 18, 2013. The United States has free trade agreements with all four
countries and has significant trade and foreign policy ties with the region. The Pacific Alliance is
of interest to Congress because of the role of the United States as an observer country and also
because of the strong linkages between the United States and the member countries. It may also
be of interest to Congress in the context of the ongoing negotiations for the proposed Trans-
Pacific Partnership (TPP) agreement. Three of the four Pacific Alliance member countries are
participating in the TPP negotiations.
The Alliance was officially created when the heads of state of Chile, Colombia, Mexico, and Peru
signed a Presidential Declaration for the Pacific Alliance, now known as the Lima Declaration.
The objectives are to build an area of deep economic integration; to move gradually toward the
free circulation of goods, services, capital, and persons; to promote economic development,
regional competiveness, and greater social welfare; and to become a platform for trade integration
with the rest of the world, with a special emphasis on the Asia-Pacific region. One of the
requirements for membership is that a country must have free trade agreements with all other
member countries.
The four member countries have embraced free trade as far back as the 1980s and have multiple
free trade agreements with many countries, including the United States, Canada, China, and the
European Union. Their economies, with the exception of Mexico, are experiencing some of the
fastest growth in the region. They represent 36% of Latin America’s population, 37% of its total
GDP; 47% of its exports, and 46% of its imports. Mexico accounts for much of the economic
strength of the group, representing 60% of the combined gross domestic product.
Observer countries play an important role within the Alliance. Being an observer country may
help a country better understand the issues being negotiated and also provides opportunities for
participation in activities such as trade forums and educational seminars. The Alliance has 30
observer countries, including the United States, Australia, Canada, China, several Central and
South American countries, numerous European countries, Israel, Japan, Turkey and others.
The Alliance’s approach to trade integration is often looked upon as a pragmatic way of
deepening economic ties. It is more outward focused than other regional initiatives such as the
Common Market of the South (Mercosur). Another unique characteristic is that the four member
countries share similar economic and political ideals and are moving forward very quickly to
accomplish their goals. Member countries have signed various agreements to share use of their
facilities or embassies and consulates to further advance the objectives of the integration process.
In February 2014, Presidents of Pacific Alliance countries signed the Additional Protocol of the
Framework Agreement, which immediately eliminated 92% of tariffs among members. Some
analysts see the Pacific Alliance as a potential rival to Mercosur and have noted that it could put
pressure on other Latin American countries to pursue more market-opening policies. The Alliance
has a larger scope than free trade agreements such the proposed TPP since it involves the free
movement of people and includes measures to integrate the stock markets of member countries.
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The Pacific Al iance: A Trade Integration Initiative in Latin America
Contents
Introduction ...................................................................................................................................... 1
Objectives ........................................................................................................................................ 1
Alliance Framework ........................................................................................................................ 2
Member Countries ..................................................................................................................... 2
Observer Countries .................................................................................................................... 3
Organizational Institutions ........................................................................................................ 4
Council of Ministers ............................................................................................................ 5
High Level Group................................................................................................................ 5
Technical Groups ................................................................................................................. 5
Summits ........................................................................................................................................... 6
Accomplishments to Date ................................................................................................................ 7
Trade Liberalization .................................................................................................................. 8
Trade Promotion Activities ........................................................................................................ 8
Movement of Persons ................................................................................................................ 8
Financial Integration .................................................................................................................. 9
Shared Embassies ...................................................................................................................... 9
Economic Significance of the Pacific Alliance Group .................................................................... 9
Trade Relations with the United States.................................................................................... 11
U.S. Merchandise Trade with Pacific Alliance Members ................................................. 12
Outlook .......................................................................................................................................... 13
Figures
Figure 1. Pacific Alliance Members and Observer Countries .......................................................... 4
Figure 2. Pacific Alliance Countries’ Direction of Trade in Goods: 2013 ..................................... 12
Figure 3. U.S. Merchandise Trade with Pacific Alliance Countries .............................................. 13
Tables
Table 1. Key Economic Indicators for Pacific Alliance (PA) Countries in 2013 ........................... 10
Table 2. Foreign Direct Investment Flows to Pacific Alliance Countries: 2007-2012 .................. 11
Contacts
Author Contact Information........................................................................................................... 15
Acknowledgments ......................................................................................................................... 15
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The Pacific Al iance: A Trade Integration Initiative in Latin America
Introduction
The Pacific Alliance is a regional integration initiative comprised of Chile, Colombia, Mexico,
and Peru.1 Costa Rica and Panama are candidates for becoming full members. The Alliance was
created on April 28, 2011, in Lima, Peru, when the heads of state of Chile, Colombia, Mexico,
and Peru signed a Presidential Declaration for the Pacific Alliance, now known as the Lima
Declaration, to facilitate the free flow of goods, services, capital, and people. The United States
officially joined the Alliance as an observer on July 18, 2013. The project was an initiative of
then-Peruvian President Alan Garcia, who extended the invitation to his counterparts in Chile,
Colombia, and Mexico, with the purpose of deepening the integration of these economies.
The initiative was developed as a way to supplement existing trade agreements among the four
countries. The concept of the initiative was for the four countries to act as a unified economic
bloc to negotiate and trade with other countries.2 The Alliance is making efforts to liberalize trade
in goods and services, open foreign investment, integrate securities markets, and allow the free
movement of people among member countries. It has shared values in regard to the respect for
rule of law, democracy, and protection of human rights, though the current focus is on liberalizing
and increasing trade and investment. Member governments have committed to open markets, free
trade policies, fiscal stability, openness to foreign investment, and strengthening trade relations
with the Asia-Pacific region.
This report provides an overview of the structure of the Pacific Alliance, events leading up to its
creation, and the economic significance of the Member countries. It will be updated as events
warrant.
Objectives
Pacific Alliance members are aiming to form deeper integration that boosts further growth,
development, and competitiveness of their economies by progressively seeking free movement of
goods, services, capital, and people. Another key goal is for the Alliance to become a platform for
economic and trade integration with a clear focus on the Asia-Pacific region.3
The stated objectives of the Pacific Alliance consist of the following:4
• Build, in a participatory and consensual manner, an area of deep economic
integration and to move gradually toward the free circulation of goods, services,
capital, and people.
1 Regional trade agreements or arrangements (RTAs) are those in which member-countries grant each other preferential
treatment in trade. RTAs may be categorized as bilateral, plurilateral, or sub-regional. With no formal definitions, these
terms are sometimes used loosely to describe various groupings. A free trade agreement is a type of RTA and is usually
an agreement between two or more countries to reduce and eliminate tariffs and other trade barriers on a reciprocal
basis. Free trade agreements establish enhanced rules and disciplines to govern trade relationships.
2 Socorro Ramirez, “Regionalism: The Pacific Alliance,” Americas Quarterly, Americas Society and Council of the
Americas, April 22, 2013.
3 See Pacific Alliance website at http://alianzapacifico.net.
4 The Pacific Alliance and its Objectives, at http://alianzapacifico.net.
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• Promote the growth, development and competitiveness of the Parties’ economies,
aiming at achieving greater welfare, overcoming socioeconomic inequalities, and
achieving greater social inclusion of their residents.
• Become a platform for political articulation, and economic and trade integration,
while projecting these strengths to the rest of the world, particularly the Asia-
Pacific region.5
Alliance Framework
The Alliance was formally established in a Framework Agreement on June 6, 2012, during a
presidential summit in Antofagasta, Chile. This agreement is the legal instrument that creates the
institutional basis of the regional integration initiative. It also defines the objectives of the
alliance and establishes the requirements for the future participation of other countries.6 The four
members already have in place bilateral free trade agreements amongst each other and have
agreed to coordinate efforts regarding development agencies, electronic trade, services, and
tourism. The Pacific Alliance is the first major trade integration effort in the region since the
creation of the Southern Common Market (Mercosur) over 20 years ago.7
The framework agreement contains the parameters, institutional architecture, and rules that
govern the Alliance. It establishes certain requirements for a country to be a member of the
Alliance. These requirements state that Alliance members must be democracies; practice the
separation of the powers of state; and protect, promote, and guarantee human rights and
fundamental liberties.8 A key requirement is that member countries must have existing bilateral
trade agreements with all other member countries.
Member Countries
As shown in Figure 1, current members of the Pacific Alliance are Chile, Colombia, Mexico, and
Peru. The economies of the four countries are among the most liberalized in the world. Chile has
22 free trade agreements9 linking it to 60 countries, including the European Union (EU), the
United States, China, Japan, and South Korea.10 Colombia has 12 free trade agreements (FTAs)
involving 30 countries, while Mexico has 12 FTAs with 44 countries, including the United States,
5 Ibid.
6 VII Summit: The Pacific Alliance, available in the website of the Pacific Alliance, at http://alianzapacifico.net.
7 Mercosur is the “Common Market of the South” established by Brazil, Argentina, Uruguay, and Paraguay in 1991 to
promote economic integration and political cooperation among the four countries. It now also includes Venezuela. It is
a customs union with a common external tariff. Mercosur has struggled to achieve deep economic integration, but has
maintained a cooperative economic and political framework, which has served in the past as an influential voice in
determining the fate of the hemisphere's multilateral integration initiatives. In particular, the U.S. vision for
hemispheric integration under the proposed Free Trade Area of the Americas (FTAA) stalled largely because of
opposition from Mercosur.
8 Framework Agreement of the Pacific Alliance, available at http://alianzapacific.net.
9 Many of the free trade agreements (FTAs) negotiated by Latin American countries are not as comprehensive as the
ones negotiated with the United States, which usually bring tariff barriers down to zero. FTAs negotiated by Latin
American countries with other countries often maintain certain tariff barriers.
10 “Pacific Alliance Showing Clout,” The Japan Times, January 28, 2013.
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China and the EU. Peru has 15 FTAs with 50 countries.11 Pacific Alliance countries have a total
of 15 FTAs with countries in the Asia-Pacific region. In comparison, Mercosur has only four
FTAs. Both Mexico and Chile are also members of the Organization for Economic Cooperation
and Development (OECD), and Colombia has applied for membership. The coming together of
these four countries indicates that they have similar political and economic objectives, recognize
their commitment to free trade, and interested in increasing trade ties with the Asia-Pacific region.
Costa Rica is a candidate to become the Alliance’s first new member. In February 2014, Costa
Rica signed a Declaration on the Intent to the Framework Agreement, which establishes the
roadmap for Costa Rica to become a full member of the Alliance. It must comply with the
requirement to have FTAs with each of the member countries.12 Costa Rica currently has trade
agreements in force with Chile, Mexico and Peru, and has signed an FTA with Colombia that is
awaiting approval. Panama is also a candidate for joining once it complies with all the
requirements. It has free trade agreements in force with Chile and Peru, and has an agreement
with Colombia that was signed in September 2013 and is awaiting approval. Panama has also
initiated FTA negotiations with Mexico.13 Panama and Costa Rica have an FTA that entered into
force on November 23, 2008.14
Observer Countries
The Pacific Alliance has 30 observer countries, including the United States, Australia, Canada,
China, Costa Rica, Dominican Republic, Ecuador, El Salvador, Finland, France, Germany,
Guatemala, Honduras, India, Israel, Italy, Japan, Morocco, Netherlands, New Zealand, Panama,
Paraguay, Portugal, Republic of Korea, Singapore, Spain, Switzerland, Turkey, the United
Kingdom, and Uruguay. Under Article 10 of the Framework Agreement, countries that have FTAs
with at least half of the member countries may apply for observer status to the Pacific Alliance.
Their status as observer countries will be approved only upon unanimous consent of the Council
of Ministers. The Council of Ministers is responsible for defining the conditions under which a
country may participate as an observer.15
While their role is limited, observer countries may participate in some of the Alliance’s activities
such as regulatory coherence and cooperation on travel requirements. Some analysts state that
observers to the Alliance may benefit from gaining increased access to Asia Pacific trade links.16
Observer status may help countries better understand the issues being negotiated in the Alliance
and could help a country ultimately decide if wants to join as a member. One of the goals in the
case of Australia, for example, would be to diversify trade by going beyond supplying the energy
and minerals that have dominated its trade with Asia. While that particular trade pattern has led to
a substantial increase in Australia’s gross domestic product, it has not resulted in higher
productivity, which would be necessary to raise living standards.17 In the case of Spain, Spanish
11 VII Summit: The Pacific Alliance, available at http://alianzapacifico.net.
12 The Pacific Alliance, Costa Rica to Join the Pacific Alliance, February 14, 2014. at http://alianzapacific.net.
13 Organization of American States, Foreign Trade Information System (SICE), Pacific Alliance, at
http://www.sice.oas/org.
14 SICE, Central America – Panama, at http://www.sice.oas/org.
15 Framework Agreement of the Pacific Alliance, available at http://alianzapacific.net.
16 Nneka Etoniru, “Explainer: What is the Pacific Alliance?,” Americas Society and Council of the Americas, May 17,
2013.
17 “Australia to Seek Pacific Alliance Observer Status as Part of Regional Push,” World Trade Online, November 9,
(continued...)
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Prime Minister Mariano Rajoy stated that the alliance could be a gateway to the booming Asia-
Pacific region. Other European leaders have made similar statements.18
Figure 1. Pacific Alliance Members and Observer Countries
Source: Congressional Research Service (CRS) using information provided by the Pacific Alliance at
http://alianzapacifico.net/en/.
Notes: Costa Rica and Panama have asked to join the Pacific Alliance as full members and are candidates to join
once they meet the requirements.
Organizational Institutions19
The Presidents of the four countries make up the final decision-making body of the Alliance.
They meet at formal presidential summits of which there have been eight. In addition, there are
several organizational institutions that are responsible for overseeing the objectives and technical
aspects of the Alliance.
(...continued)
2012.
18 The Japan Times, January 28, 2013.
19 Information in this section came from the Pacific Alliance website at http://alianzapacifico.net.
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Council of Ministers
The Council of Ministers is comprised of the foreign affairs and economic ministers of member
countries. The council is responsible for making major decisions related to the objectives of the
alliance; evaluating progress and results; approving programs and activities; defining the political
guidelines related to the integration process; and other related activities.
High Level Group
The High Level Group consists of member countries’ vice-ministers of foreign affairs, commerce,
and trade. It is charged with assessing the progress made by the technical working groups;
identifying new areas in which the alliance can further its objectives; and preparing proposals for
interacting or cooperating with other entities or regional groups.
Technical Groups
The Pacific Alliance countries established numerous working groups to address specific aspects
of the negotiations and internal matters. Some of these issues, such as government procurement
and regulatory cooperation, are related to provisions that are covered in existing FTAs and to
ongoing discussions in the TPP negotiations. Working groups include:
• Institutional Affairs. This working group was created to focus on commitments
made by the High Level Group with regard to issues such as institutions, conflict
resolution, rules and guidelines, and legal affairs. The group is also charged with
writing pertinent procedural guidelines for the Alliance’s internal organizations
and groups.
• Regulatory Coherence. This group aims to establish tools for the
implementation of policies for greater transparency, public consultation,
regulatory impact, and simplification of government regulations.
• Trade and Integration Group. This group focuses on the trade integration of
Pacific Alliance members. The goal is to move progressively closer to the free
movement of goods and services and generate a greater dynamism in the flow of
trade between countries. The group is active in negotiating provisions on tariff
elimination, rules of origin, technical barriers to trade, sanitary and phytosanitary
measures, trade facilitation, and customs cooperation.
• Business Council Committee of Experts. This group was created to represent
business interests and to analyze topics recommended by member country
business sectors. The business committee serves as a coordinating body and
liaison between private sector interests and proposals and the Pacific Alliance.
• Public Purchasing/Government Procurement. This group focuses on
establishing commitments from on levels of government on government
procurement opportunities for Pacific Alliance countries.
• Technical Cooperation. This group helps to promote broad cooperation among
member countries with a special focus on the environment and climate change,
innovation, science and technology, social development, academic and student
exchange, and tourism.
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• Communication strategy. This working group designs and implements
communication strategies to help the Pacific Alliance achieve worldwide
recognition as a model for integration, economic and commercial development,
competitiveness, and effective cooperation among its members in the global
economy.
• Movement of Business People and Facilitation of Migration. One of the
priorities of the Pacific Alliance is the free movement of business people and the
facilitation of migration transit, including cooperation with immigration officials
and the consular police. This group focuses on migratory movement and the free
flow of business people, consular cooperation and work-study programs for
students, as well as cooperation and information exchange on migration flows.
• Intellectual Property. This working group focuses on exploring methods for
closer cooperation among member countries in order to strengthen intellectual
property rights protection in the region.
• Small and Medium-Sized Enterprises (SMEs). This technical group was
designed to deepen the coordination of best public policy practices that support,
strengthen, and modernize small and medium-sized enterprises.
• Services and Capital. This group focuses on services trade, including e-
commerce, investment negotiations, cross-border trade in services, financial
services, telecommunications, air and maritime transport, and professional
engineering services. This group also will work on the proposed integration of
stock exchanges among member countries.
• External Relations Group. The purpose of this group is to design a strategy for
external relations with observer countries and third parties to help promote the
objectives of the Alliance.
• Fiscal Transparency. The governments of Pacific Alliance countries are
committed to fiscal transparency and the fight against tax evasion. They agreed to
incorporate high standard tax information exchange policies. This technical
group is working on concluding a Pacific Alliance tax information exchange
agreement.20
Summits
Leaders of the member countries of the Pacific Alliance have held eight presidential summits.
These include the following:
I.
Lima, Peru, April 28, 2011. The Heads of State of Chile, Colombia, Mexico,
and Peru agreed on the Declaration of Lima establishing the Pacific Alliance with
the goal of advancing towards the free flow of goods, service, capital, and
people. Panama was invited to participate in the process as an observer.
II.
Merida, Mexico, December 4, 2011. The Presidents of the four Pacific Alliance
countries agreed to sign a Pacific Alliance Treaty within six months.
20 For more information on Pacific Alliance working groups, see http://alianzapacifico.net/en.
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III.
Cartagena, Colombia, March 15, 2012 (via teleconference). During this
conference, Costa Rica was included as an observer.
IV.
Antofagasta, Chile, June 6, 2012. The four countries formally entered into a
Framework Agreement establishing the Pacific Alliance. The Framework
Agreement is a legal instrument creating the institutional basis of the initiative,
defining its objectives, and establishing the requirements for future negotiations
and participation of other countries in the region.21
V.
Cádiz, Spain, November 17, 2012. Mexico announced the exemption of visa
requirements for Colombians and Peruvians for up to 180 days. Australia,
Canada, Spain, New Zealand and Uruguay were welcomed as observers.
VI.
Santiago, Chile, January 26, 2013. The four Heads of State agreed that the
negotiations that were underway at the time would be concluded by June 30,
2013.
VII.
Cali, Colombia, May 23, 2013. The four countries invited Costa Rica to become
the Alliance’s first new member. The Alliance also announced an agreement to
remove tariffs on 90% of the goods traded within the bloc and completed
negotiations on trade facilitation and customs cooperation provisions. Over 450
business representatives from 14 countries attended the summit.22
VIII.
Cartagena, Colombia, February 10, 2014. Presidents of Pacific Alliance
countries signed the Additional Protocol of the Framework Agreement for the
Pacific Alliance. The Additional Protocol immediately eliminated 92% of tariffs
between members, and gradually will phase out the remaining 8% of tariffs over
a seven-year period.
IX.
Punta Mita, Mexico, June 19 -20, 2014. The four presidents signed the
Declaration of Punta Mita, by which they seek to strengthen the objectives and
guidelines of the Alliance, including the free movement of goods and services,
capital and people. They announced the approval to incorporate the Mexican
Stock Exchange into the common stock exchange, the Latin American Integrated
Market, or the Mercado Integrado Latinoamericano (MILA), which is expected
in the fourth quarter of 2014. Other highlights of the summit included the signing
of an Inter-institutional Agreement for a Work and Holiday Program, the launch
of a scholarship program, and the announcement of a plan for promoting small
businesses through financing, investment, and support networks.
Accomplishments to Date
The four countries have taken numerous steps to accomplish their objectives. In addition to
eliminating tariffs between member countries, they are organizing trade promotion activities;
facilitating the movement of tourists and business people among member countries; liberalizing
services trade; integrating their stock markets; and opening joint embassies in various countries.
21 The Pacific Alliance Timeline, available at http://alianzapacifico.net.
22 Susan Schmidt and Gabrielle Doyle, “The Pacific Alliance: Will Latin America’s Newest Regional Initiative Be
Able to Keep its Eyes on the Prize?,” Bloomberg BNA International Trade Daily, June 14, 2013.
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Trade Liberalization
Alliance members have embraced open trade since the 1980s and 1990s, either through unilateral
trade liberalization or through FTAs. They have actively participated in bilateral and multilateral
trade liberalization and have aligned with countries that are also seeking to accomplish, bilaterally
and regionally, what has not been possible to accomplish through the World Trade Organization
(WTO).23 All member countries have entered into FTAs with all other member countries. They
have also entered into FTAs with the United States, Canada, and the EU and have trade linkages
with Asian countries. China, Japan, South Korea, and Singapore, and India have all concluded
agreements with at least two Pacific Alliance members.24 While these agreements may have
significantly liberalized trade, some are more comprehensive than others and not all have brought
tariff levels down to zero.
Trade Promotion Activities
The trade promotion agencies of Chile, Colombia, Mexico, and Peru (ProChile, Proexport
Colombia, ProMexico, and PromPeru) are combining their efforts to promote exports, attract
foreign direct investment, and promote tourism in the Alliance countries. They have worked
together to program activities in 18 countries, including Australia, Canada, China, Colombia,
France, Germany, India, Japan, Mexico, the Netherlands, Peru, Russia, South Korea, Spain,
Switzerland, Taiwan, Turkey, and the United Arab Emirates. These activities include major
business forums for entrepreneurship and innovation, meetings of tourism operators for the
design of products and packages, educational seminars, trade fairs with emphasis on agribusiness,
and other trade promotion activities, many of which involve small and medium sized businesses.
These efforts have involved approximately 5,858 entrepreneurs in 24 countries.25
Movement of Persons
The Declaration of Lima established that the Alliance would prioritize the movement of business
people and the facilitation of migration transit.26 This provision is intended to facilitate not only
the movement of business people, but also tourists and those in transit between the member
countries. Alliance members view the free movement of people as a tool for achieving deeper
integration, growth, and competitiveness.27
In November 2012, Mexico announced the elimination of visas for nationals from Colombia and
Peru for stays of up to 180 days. Chilean nationals were already able to travel to Mexico without
visas. Mexico’s removal of visa requirements includes any activities for which they have received
no income such as tourism, transit, or business travel. In May 2013, Peru announced the
elimination of visas for business people from Chile, Colombia, and Mexico for up to 183 days,
provided that they carry out an unpaid activity in the country. Member countries also adopted
23 Samuel George, The Pacific Pumas, An Emerging Model for Emerging Markets, Bertelsmann Foundation, March 12,
2014, p. 20.
24 Ibid., P. 21.
25 The Pacific Alliance, Promotional Entities of the Pacific Alliance, Ready to Travel the World in 2014, March 17,
2014, http://alianzapacifico.net.
26 The Pacific Alliance, Movement of People, http://alianzapacifico.net.
27 Ibid.
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measures for greater mobility of people from member countries for periods up to six months,
provided that the activities they carry out are unpaid. Alliance members are currently working on
expanded facilitation measures for migration transit, agreements for the greater mobility of young
people to travel and work, and mechanisms for consular cooperation.28
Financial Integration
The Alliance seeks to achieve the free movement of services and capital between its members,
basing its work on two major goals: 1) to position itself as an attractive destination for investment
and trade in services, and 2) to increase investment flows and trade in services among its
members and with the rest of the world. It established a joint committee to improve the
investment climate and boost services trade. The Pacific Alliance’s Group of Services and Capital
is working to establish conditions that will facilitate and promote trade in services and intra-
regional investment. It completed negotiations on chapters on services trade, investment,
electronic commerce, maritime services, and telecommunications.
In 2011, Chile, Colombia, and Peru integrated their stock exchanges through the formation of the
Latin American Integrated Market, or the MILA. Mexico has signed an agreement to connect its
stock exchange to MILA, which is expected to happen by the end of 2014.29 On July 24, 2014,
S&P Dow Jones Indices, one of the world’s leading providers of financial market indices,
announced the launch of the S&P MILA Pacific Alliance Indices.30
Shared Embassies
Member countries have signed various agreements to share use of their facilities or embassies and
consulates to further advance the objectives of the integration process. As part of these
agreements, joint embassies are now in operation in Ghana (Chile, Colombia, Mexico, and Peru),
Vietnam (Colombia and Peru), Morocco (Chile and Colombia), Algeria (Chile and Colombia),
Azerbaijan (Chile and Colombia), and a diplomatic mission to the Organization for Cooperation
and Economic Development (Chile and Colombia). In addition, Mexico and Colombia will soon
be opening an embassy in Singapore. The Alliance expects that by having joint embassies, they
can strengthen their presence around the world and reduce the operation costs of these missions.31
Economic Significance of the Pacific Alliance Group
Pacific Alliance members have some of the fastest-growing economies in the region. In 2013,
Peru had the highest percentage change in real GDP at 5.1%, compared to 2.7% for the entire
Latin American region. Colombia’s GDP increased by 4.3% while Chile’s increased by 4.0%.
Mexico, with a GDP growth rate of 1.3% in 2013, is the only country in the group with slower
28 Ibid.
29 Gabriel Stargardter, "Mexico Stock Exchange to be Linked to LatAm Bourses in 2014," Reuters, June 19, 2014.
30 "S&P Pacific Alliance Indices Launched by S&P Dow Jones Indices," Market Watch, July 24, 2014.
31 The Pacific Alliance, "Colombia and Chile Signed an Agreement to Share an Embassy in Baku, Azerbaijan, and a
Diplomatic Mission to the OECD in Paris, France," press release, February 8, 2014, http://alianzapacifico.net.
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economic growth than Latin America as a whole.32 The four Latin American countries account for
36% of Latin America’s population, 37% of Latin America’s total GDP, 47% of exports and 46%
of total imports. Mexico, however, accounts for much of the economic strength of the group. It
represents 54% of the Alliance’s population, 60% of the GDP, and 66% of exports as shown in
Table 1.
Table 1. Key Economic Indicators for Pacific Alliance (PA) Countries in 2013
Latin
PA as %
Chile Colombia Mexico Peru Total
PA
America
of LA
(LA)
Population
(mil ions)
18 49 116 31 214 593 36%
Nominal GDP (US$
277
378 1,261 207 2,123 5,937 37%
billions)a
Nominal GDP (US$ billions
395
529 2,095 344 3,363 8,008 42%
at PPP)b
Per capita GDP (PPP)b 19,067
11,189
15,563
11,124 -- -- --
Exports of Goods &
90 67
401
48
606
1,280
47%
Services (US$ billions)
Imports of Goods &
91 74
409
50
624
1,361
46%
Services (US$ billions)
Source: Compiled by CRS based on data from Economist Intelligence Unit (EIU) online database.
a. Nominal GDP is calculated by EIU based on figures from the World Bank and World Development
Indicators.
b. PPP refers to purchasing power parity, which reflects the purchasing power of foreign currencies in U.S.
dollars.
In 2012, foreign direct investment (FDI) flows into Latin America and the Caribbean increased
considerably, reaching a record high of $174.5 billion. This was 5% above the 2011 level and
continued the upward trend that began in 2009. The largest increases were in Peru (49%) and
Chile (32%). FDI inflows also rose significantly in Colombia (18%). However, Mexico
experienced a 38% downturn in inward FDI in 2012 (see Table 2) the lowest figure since 1999. In
comparison, global FDI flows decreased by 13% in 2012, most likely due to economic
uncertainty in the United States and the EU. Developed countries experienced the sharpest drop
in FDI inflows (22.5%) in 2012.
According to a report by the United Nations Economic Commission for Latin America and the
Caribbean, the rise in FDI flows to the Latin American and Caribbean region was due to several
factors: 1) economic uncertainty in the EU and the United States has displaced investment
towards emerging markets; 2) local conditions in Latin America are currently favorable and
attractive to global investors; 3) natural resources in Latin America, especially metals, are
experiencing a price boom; and 4) the region’s domestic markets have seen several years of
steady growth and have resulted in business opportunities in telecommunications, commerce, and
financial services.
32 The Economist Intelligence Unit Country Data online database.
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Table 2. Foreign Direct Investment Flows to Pacific Alliance Countries: 2007-2012
(US$ in Millions)
2007 2008 2009 2010 2011 2012
Chile
12,572 15,518 12,887 15,373 22,931 30,323
Colombia
9,049 10,596 7,137 6,758 13,438 15,823
Mexico
31,380 27,853 16,561 21,372 21,504 13,431
Peru
5,491 6,924 6,431 8,455 8,233 12,240
Total
PA 58,492 60,891 43,016 51,958 66,106 71,817
Latin
116,382 138,698 82,948 124,368 165,815 174,546
America &
Caribbean
Source: United Nations Economic Commission for Latin America and the Caribbean (ECLAC), Foreign Direct
Investment in Latin America and the Caribbean: 2012.
Notes: ECLAC data on the basis of estimates and official figures as of April 29, 2013.
Trade Relations with the United States
As shown in Figure 2, the United States is a significant trading partner for all four countries. It is
by far Mexico’s most important trading partner, accounting for 49.1% of Mexico’s imports and
78.8% of Mexico’s exports. The United States is the leading supplier of goods imported by all
four members. In exports, the United States ranks among the top two destinations for exports
from these countries. China also is a significant trading partner for member countries and, in the
case of Chile, ranks first among its export markets.
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Figure 2. Pacific Alliance Countries’ Direction of Trade in Goods: 2013
(Imports and Exports in Percentages)
Source: Congressional Research Service from data as presented in Global Trade Atlas.
U.S. Merchandise Trade with Pacific Alliance Members
U.S. merchandise imports from Pacific Alliance countries totaled $320.7 billion in 2013, a 1%
increase over the 2012 amount of $318.0 billion. U.S. imports from all four countries increased
113% between 2003 and 2013. Mexico supplies 87% of U.S. imports from the Pacific Alliance as
shown in Figure 3. Exports to Pacific Alliance countries totaled $272.1 billion in 2013, a 5%
increase over the 2012 amount of $260.4 billion. U.S. exports to these countries increased nearly
160% between 2003 and 2013. Mexico accounts for over 80% of U.S. exports to the four
countries as shown in Figure 3.
Vehicles and vehicle parts rank first among U.S. imports from the four countries, accounting for
19% of the total; followed by electrical machinery, televisions, parts, and accessories (18%);
mineral fuels (16%); nuclear reactors and mechanical appliances (13%); and natural or cultured
pearls and imitation jewelry (4%). Leading U.S. export items to all Pacific Alliance countries
include nuclear reactors, machinery, and mechanical appliances (17% of total); electrical
machinery, televisions, parts, and accessories (15% of total); mineral fuels (14% of total);
vehicles (9% of total) and plastics (6% of total).33
33 These figures were derived from trade data from the U.S. International Trade Commission interactive tariff and trade
(continued...)
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Figure 3. U.S. Merchandise Trade with Pacific Alliance Countries
Source: Compiled by CRS using data from the U.S. International Trade Commission (UJSITC) Interactive Tariff
and Trade DataWeb.
Outlook
A key difference between the Pacific Alliance and other Latin American regional integration
initiatives is its overt, outward-oriented focus, whereas historically, Latin American trade pacts
have been more inward-oriented, such as the South American trading bloc Mercosur. Some
analysts see the Pacific Alliance as a potential rival to Mercosur, the Common Market of the
South, which has not yet achieved its goal of a common market. If the Alliance proves successful,
it could put pressure on Brazil and other Mercosur countries to adopt more outward-looking and
open trade policies. At a Bloomberg event on September 22, 2014, the four Pacific Alliance
presidents expressed interest in meeting with officials from Mercosur. The two groups are
scheduled to meet in November 2014 to discuss potential areas of collaboration.
Some observers view the Pacific Alliance as a “convergence experiment” within a complex web
of free trade agreements in Latin America. It is different from other initiatives because it
represents a more pragmatic approach to build upon existing FTAs for further economic
(...continued)
dataweb at the HTS-2 level.
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integration and to serve as an export platform to the Asia-Pacific region. Major strengths of the
Alliance are the shared values among member countries, the high level of expertise among the
negotiators, and the experience of all four countries in negotiating free trade agreements. All four
countries have experienced negotiators who worked on past agreements and are part of the
institutions that have been created thus far as part of the Alliance.
Businesses are expressing much interest in the Alliance. They are actively participating in the
numerous trade events organized by the Alliance and look upon its numerous accomplishments
that have been achieved in such a short period of time as positive signals for trade and investment
opportunities. The U.S. Chamber of Commerce supports the establishment of trade ties with
Pacific Alliance countries. On October 10, 2013, it hosted a forum with Pacific Alliance finance
ministers in Washington, DC.34 Many U.S. businesses have participated in the two matchmaking
forums organized by the Alliance.
As the four countries deepen their efforts and add new members to the group, they may face
challenges in sustaining the current dynamism and focus. One of the major challenges is that
trade among the partner countries is low and the countries are a long way from exporting goods
entirely made within the region. Member countries may have to make considerable efforts and
heavily involve the private sector to create supply chains. They will have to focus on developing
the appropriate policies to create conditions within the region that would allow for the
development of supply chains. There also may be challenges in increasing trade linkages with
Asian countries. Attempts to expand trade liberalization measures with other countries may prove
difficult because of the potential complexities in coordinating and managing these efforts.35
Although the Alliance has drawn much international attention, the future of the regional trade
initiative is uncertain. According to one Latin America policy expert, there may be a “disconnect
to some extent between some of the great projections and expectations and the real continuing
deficiencies in key areas like infrastructure.”36
One of the major strengths of the initiative is that member countries share similar economic goals.
These similarities can provide the pragmatic flexibility to move forward together on their
objectives. As long as member countries focus on trade and investment, and not politics, the
likelihood for deeper integration may be greater. Some observers believe that the Pacific Alliance
can serve as a “hub for knitting together FTAs with Latin American partners and linking up to the
proposed Trans-Pacific Partnership and Transatlantic Trade and Investment Partnership.”37 Other
observers contend that the Alliance may fall victim to past patterns of regional initiatives and lose
its momentum. The government of newly-elected Chilean President Michelle Bachelet has
expressed concerns about moving ahead with the Pacific Alliance if it means leaving other
countries in the region behind.38 In June 2014, Chile’s former President Ricardo Lagos and
Brazil’s former President Luiz Inacio Lula da Silva expressed their view that the Alliance would
34 Embassy of Colombia, http://www.colombiaemb.org.
35 Susan Schmidt and Gabrielle Doyle, “The Pacific Alliance: Will Latin America’s Newest Regional Initiative Be
Able to Keep its Eyes on the Prize?,” International Trade Daily, June 14, 2013.
36 Statement by Michael Shifter, President of the Inter-American Dialogue, in a Miami Herald article; Jim Wyss,
“Costa Rica and Guatemala Move Closer to Joining Pacific Alliance Bloc,” Miami Herald, May 23, 2012.
37 Bargara Kotschwar, The Pacific Alliance's Accomplishments, Peterson Institute for International Economics,
Conference on Mexico and the United States: Building on the Benefits of NAFTA, Washington, DC, July 15, 2014.
38 Christopher Sabatini, "Meaningless Multilateralism, In International Diplomacy, South America Chooses Quantity
Over Quality," Foreign Affairs, August 8, 2014.
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be more effective in achieving its goals by first deepening the trade relationship with Argentina
and Brazil.39 These views may have prompted the Alliance to reach out to representatives from
South America’s big trade bloc Mercosur.
Three of the four Pacific Alliance members (Chile, Mexico, and Peru) are participating in the
negotiations for the Trans-Pacific Partnership, a potential “comprehensive and high-standard”
FTA among 12 countries, including the United States, which aims to liberalize trade in goods and
services, remove barriers to foreign investment, and enhance trade rules and disciplines on a
range of issues.40 While the Pacific Alliance has a larger scope than the proposed TPP since it
involves the free movement of business people for certain time periods and an integration of the
stock markets of member countries, some observers have noted that the two could be
complementary agreements.41
Author Contact Information
M. Angeles Villarreal
Specialist in International Trade and Finance
avillarreal@crs.loc.gov, 7-0321
Acknowledgments
Amber Hope Wilhelm, Visual Information Specialist at CRS, contributed to this report.
39 Luiz Inacio Lula da Silva and Ricardo Lagos, "America Latina: Dos Oceanos, Una Voz," El Pais, June 19, 2014.
40 For more information on the Trans-Pacific Partnership, see CRS Report R42694, The Trans-Pacific Partnership
(TPP) Negotiations and Issues for Congress, coordinated by Ian F. Fergusson.
41 “Australia To Seek Pacific Alliance Observer Status As Part of Regional Push,” World Trade Online, November 9,
2012.
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