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All the built up expectations last year towards the possibility of concluding a plurilateral agreement on services on a large scale have now moved into limbo in the last month. The  23 parties announced in early December that negotiations were suspended after the US presidential election and due to difficulties in getting the EU to engage on key issues. Progress on the front of other mega-regional agreements such as TPP is even less likely.

The recent decision calls for the need to push forward with the services agenda within the Pacific Alliance which keeps a humble approach on this field. There is a lot to be done on this front starting with the development of an overarching regional policy that is certainly not exhausted by the aggregation of single services offers of each member.

Services exporting baskets in the PA members continue to be low when compared to other developing countries in Asia Pacific. Trade balances systematically show a deficit on services trade despite some progress and rapid growth. Transport and travel continue to play the most import role in the services export baskets of the countries while the potential of other commercial services, including business services, continues to be unleashed. A regional policy requires enhancing services exports within the PA and beyond.

Many issues should be considered for a regional services policy, but I would like to call the attention to some of them in this post. First, the need for regional strategies that help developing, not only competing but also complementing and integrated services offers. The members  provide competing services today in sectors such as engineering, software and IT services, health services, animation and video games. Second, regulatory coordination and harmonisation to facilitate services trade within the PA and with third countries. Moreover, it is worth examining the offers and general provisions contained in the TiSA agreement to improve some of the commitments made by the PA parties in the current agreements.

It seems that the global political scenario makes the PA the only foreseeable option for the members to move forward at a regional level in the field of services in the forthcoming years.

Sources: Bloomberg, WTO Reporter

I would like to share with you some views on the foreseen implications of  Trump’s future presidency for the PA.

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Unlike the enthusiasm showed by Obama about the establishment and progress of the PA, it is expected that President Trump will not give high relevance to the PA in his foreign trade policy, especially if his manifested approach is bilateral agreements rather than regional. It will be interesting to see if he decides to withdraw the status as an observer state of the process, but this move will certainly not be a priority on his list of concerns. This decision would have political costs that he might not be interested in paying, especially because there has not been a particularly strong working agenda with the US derived from its position as an observer.

The PA has concluded cooperation agreements with Canada and ASEAN but not the US. The likelihood of a future partnership or cooperation agreement between the PA and the US during Trumps’ presidency is rather low, to say the least.

Trumps’ Presidency represents an opportunity for Mexico to strengthen its economic ties with its other PA allies to diversify its commercial partners to reduce the economic dependency on the US.  The new scenario could benefit and push the PA economic outcomes. This time driven not only by desire but also by eventual economic necessity based on the actual approach that Trump decides to take towards Mexico once in charge.

Elected President Trump has not expressed any support or interest for the peace talks in Colombia, in fact he has kept quiet on this topic. The future implementation of the peace agreements in Colombia, if approved, has lost an important regional ally —the United States. Possible economic, technical or capacity building support to the implementation process of the agreements seems off the table today.

Trumps’ approach to the region ultimately could lead to a decline in the regional leadership of the US within the Americas, because the domestic agenda that brought him to the White House will take precedence over any regional issue that is not directly under the radar of its electors.

The chances of TPP being approved by the US Congress during the lame duck, fade with the days, and this was the last and only chance for the agreement to be approved. As the Congress returns this week, TPP is not part of the agenda, while Senate majority leader, Mitch McConnell, has stated that “it is certainly not going to be brought up this year.” The possible failure of the TPP would represent the loss of economic opportunity for the PA members individually (Mexico, Chile and Peru), especially for Peru which was estimated to benefit the most. It would be a lost chance to update bilateral trade agreements for Chile and Peru, and NAFTA in the case of Mexico.

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It has already been documented that one of the main reasons for the early success of the Pacific Alliance lies in its ability to show and prove real results by tackling areas and projects where member states share common views and interests. These refer to non-contentious areas such as cooperation in education, innovation, science and technology, as well as the promotion of SMEs.

However sooner than later the PA will have to deal with more sensitive areas of the deep integration process if it is to live up to the expectations created. The PA needs to work on the high hanging fruits and test the political will to tackle these areas which include:

Labour Mobility: this field comprises not only flexibility of migratory requirements for high and medium skill professionals and technical personnel, but also the recognition of their qualifications and requirements to practice in the territory of the parties.

Financial Integration: although parties are working into integrating their stock markets through MILA the operations undertaken within it continue to be low due to hurdles from different sources including differences in regulatory frameworks, barriers to institutional investors such as pension funds and inefficiencies coming from dual fees and non-unified clearance systems.

Unleash the potential of energy integration: Marczak and George call on the need to work on a comprehensive integrated energy matrix within the PA using the Central American (Central American Interconnection System) experience as a precedent.

Progress in these areas requires high levels of regulatory harmonization and convergence that could trigger disagreements among domestic stakeholders benefited by the status quo regulation. Moreover, engaging the private sector participation in funding long-term projects continues to be a challenge. Again harmonisation of regulatory frameworks regarding public-private partnerships constitutes a step in this direction.

I look forward to hearing your insights on areas of work that continue to be high hanging fruits of the Pacific Alliance Integration.

Sources: Jason Marczak and Samuel George, ‘Pacific Alliance 2.0: Next Steps in Integration’ (Atlantic Council and Bertelsmann Foundation, May 2016)

A question that has puzzled me for quite a while is what  the Pacific Alliance and its members really mean with deep integration.

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This is not a minor issue considering that deep integration is one of the main goals of the Pacific Alliance. In the future deep integration and what it entails could serve as a proxy for the success or failure of the Pacific Alliance, thus more clarity on its meaning is necessary.

I have addressed the question and tried to solve the query through different sources.

First, the text of the Framework Agreement accompanying the concept could give an indication as to the meaning and scope of the deep integration goal. Article three prescribes three goals for the PA. The first one is building an area of deep integration to advance progressively towards the free movement of good, services, capital and persons. The qualification provided is that the area of deep integration will be built in a consensual and participative way. The programmatic reference to ‘advance’ in the free movement of factors has omitted the reference to what in the common typology of Balassa refers to the common market.

Second, traditional approaches to defining the concept refer to deep integration opposing it to the concept of shallow integration. The concept was first used by Robert Laurence. It refers to a kind of commercial agreement that deals with behind the border issues. They include disciplines such as services, factors movement, harmonisation of regulatory regimes, environmental standards, and in general domestic policies that affect international competitiveness. In contrast, shallow agreements refer to agreements that deal with border issues preventing trade between two parties. The concept has been used in the literature to refer to NAFTA (North American Free Trade Agreement). Commercial agreements north-south have been also characterised as deep integration agreements, while  south-south agreements have commonly been considered shallow agreements in some academic literature. In this context, the concept seems to have a commercial connotation.

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Recently commentators and politicians have stressed the success of the PA scheme and compare it to the uncertain state of affairs in the European Union and the unexpected Brexit referendum results. They present the PA as a reference to follow.

However, I see that there are important lessons for the PA to learn from the EU situation and the British exit decision likely to materialise within the next two years. The reasons for the UK exit point to three important factors, identity conflicts paired with nationalistic rebirth, social inequality, and immigration concerns. The factors speak about the discontent of some sectors of the population over labour migration and the worsening of working conditions and paying for less qualified workers in the agriculture and services industry. The insufficient development of social policies and infrastructure (education, housing, and health) that could cope effectively with the demands of a growing population exacerbate tensions between social groups by overstretching the capabilities of the system in detriment of essential public service supply. These factors and the discontent of some groups of the population with the distribution of the benefits from the EU integration have created appropriate conditions for the nationalist sentiment to be revived and be fed by the pro exit campaigners. The results are evident, voters feeling disenfranchised with the integration project and paying the collateral costs voted to leave and won.

There are lessons worth considering for the PA to move forward in the future:

The Pacific Alliance has approved the incorporation of Argentina as the 43rd observer state of the integration scheme. The decision constitutes an effort by new Argentina’s President Macri to establish closer ties with the PA.

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What does it mean for Argentina? This move sends a political message from Argentina that the new government is taking serious steps to move away from his predecessor’s -Cristina Kirchner- foreign policy who was very critical of the PA’s approach to regionalism.

President Macri volunteers to become the middle man between the PA and Mercosur to look for means in which both groups could converge. At the political level, this sounds like convincing rhetoric, however, at the practical level it seems more difficult to reach a unified view within Mercosur on how to engage with the PA. More importantly, the political and domestic situation in Brasil and Venezuela raise concerns as to the progress that Mercosur could make in the short term, let alone on its relations with third parties.

What does it mean for the PA? at the political level, it builds momentum for the PA reinforcing the relevance of its open regionalism approach that seems to have faded for more than a decade.

At the strategic and policy level?  The step means an opportunity for the PA to examine and develop a real policy behind the status of observer states and the role they could play. It seems that different states pursue different goals by becoming observer states, some are merely political, while others involve economic and more general cooperation interests. Does the status of observer state suit all the range of purposes and expectations that third states have when expressing their interest to built closer ties with the PA? Probably not, but I’m interested to hear your views in the comments!

Finally, Argentina’s decision proves once again the enormous influence that political leadership and the ideological views of the governments in place have in developing regional ties and convergence.

President Macri will attend the next Presidential Meeting of the PA to be held on 1 July 2016.
Other new observer states of the PA include Czech Republic, Norway, Slovakia, Egypt, Ukraine, and Romania. The total number of observer states is currently 49.

sources: infolatam.com

The Pacific Alliance wraps up the week with a couple of interesting highlights:

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First, The fourth forum of innovation and entrepreneurship LAB4+ sponsored by the Pacific Alliance and the promotion agencies of the four members. The event held in Lima, Peru between 1-2 June aimed to connect and strengthen the entrepreneurial and innovation ecosystems of the region. The two main focuses of this year’s event were social innovation and ICTs. This event consisted of a series of seminars, investment rounds, thematic workshops and demo days.

Second the creation of the Strategic Observatory for the Pacific Alliance. An academic initiative looking to link the  government, the productive sector, and academia. The initiative is developed by four of the leading universities across the country members and will be physically based in Chile. The Observatory emerges as a form of think-tank to inform and support the technical work within the working groups of the PA.

It is worth noting that this is not the first initiative in this direction and other universities also have special programs to investigate the Pacific Alliance (see: icesi.edu.co). I guess this situation suggests that efforts should be made to integrate and coordinate the initiatives that emerge in relation to the study of the PA. Sharing a common technological platform on the projects that have been developed and will be developed would be a great way to ensure academic coordination, reduce the risk of overlapping and duplication efforts and encourage incremental knowledge. Moreover, it would be interesting to explore to what extent universities from other observer members could also join this promising initiative!

sources: http://magisterenderechollm.uc.cl