The reinvigorated interest of closer relations with the PA by some of the observer states is partly attributed to the uncertain future of the TPP. With a grey cloud over the TPP,  the negotiating countries are hoping to update and expand their network of commercial agreements through new channels. It is not a coincidence that, except for Colombia, the rest of original members and all the potential associate members were previous TPP negotiating parties. It would not be a surprise that they would attempt to capitalise on the issues already agreed on the TPP table when negotiating their associate member agreements. I will discuss here some concerns around the future negotiations.

Firstly, as the Pacific Alliance members and the candidates to associate members have started the negotiating process for future commercial agreements of ‘high standards’ it is timely to examine what the original PA members have in mind to put real content into an agreement of this kind. It is necessary to set the expectations and offensive interests that the PA members will put forward as a group rather than individually. Hopefully, the association agreements would be more than a form of a TPP-minus accord, where the concessions made in response to the US pressures in the context of the TPP would be withdrawn from these association agreements, and the rest will be kept untouched in the form of informal diffusion of TPP rules.

It would also be important to set a standard as to how the PA will push to incorporate disciplines in the areas of cooperation that are of interest for the mechanism: (i) movement of persons, (ii) education, (iii) trade facilitation, (iv) science technology and innovation and SMEs.

photocredits: Theodore C (CC BY-ND 2.0)  license

As Colombia starts its pro tempore presidency of the Pacific Alliance for a year, it seems timely to examine the road ahead and how its presidency could contribute to progress on the already populated agenda of the PA. This post is the first of a series of contributions that will tackle relevant issues that could be targeted as future works for the mechanism.

It is worth mentioning the multiple areas and topics in which the PA is currently working that make it difficult to map out the actual activities and progress in each of them. As it is reported in its website  (alianzapacifico.net) there are currently 20 technical groups and one subcommittee working on topics such as: digital agenda, innovation, public procurement, gender, cooperation, culture, tourism, SMEs, intellectual property, education, mining development, services and capital, public procurement, trade and integration, communications strategy, expert group on the CEAP, promotion agencies, regulatory improvement, international fiscal transparency, movement of persons, and external relations. The establishment of two more groups one on labour and the other on green growth and the environment was also envisioned in presidential declarations. However, up to today, it is not clear if the latter two groups have been established although the Cali Presidential Declaration provides for actions regarding green growth and the environment. Notwithstanding these works the PA is also undertaking joint activities on fisheries and aquaculture, health and access to medicines, and consumer protection.

The Pacific Alliance had a busy week closing with the Presidential Summit on Friday 1 July where new mandates to guide the progress of the integration mechanism were decided on.

The presidential summit was preceded by meetings of the High Level Group, The Free Trade Commission, The Ministerial Council and the Metting of Ministers of Finance. The IV Business Metting also took place on the 29th June. In addition, the third meeting of higher education institutions of the PA on the 21 and 22 June was an opportunity to discuss the role of the academic and student mobility platform for the integration of the PA countries.

Steps were taken this week on various fronts. First the PA members approved an accord that sets the tax rate on pension funds investments returns at 10 percent. This agreement covering the pension funds from the four members is an effort to boost investment in infrastructure projects while opening up the pool of investment options for these entities within the region. However this is a ceiling rate that will only require implementation by Mexico since Chile and Peru have a rate that is already  5 per cent, while Colombia has a zero per cent rate for pension funds from the PA. In addition, a decision on the creation of a regional infrastructure fund is still pending.

Photocredits: 7Crafts/FreeDigitalPhotos.net
This week the Pacific Alliance Council of Ministers announced the approval of the guidelines for states to become associates of the PA. The move is a response to the persistent interest that some of the observer states have in the mechanism and a push to move forward with economic and political relations with those observer states of ‘higher interest’.

The brief guidelines outline the requirement that, to become an associate state, the candidate should conclude a mandatory economic and commercial agreement with the four PA members that follows ‘high standards‘.  Although the guidelines are rather vague as to what constitutes a high standard agreement it seems to refer to the disciplines that shall be covered, including trade in goods, services and investment. It is also an underlying requirement that the agreement encourages openness and market integration along with its alignment with the general objectives of the PA.

While President Trump has recently withdrawn from the TPP Agreement, not yet ratified, and announced his interest in negotiating on a bilateral basis any commercial agreement, the Pacific Alliance has made an interesting political move.  The PA has called for a meeting to take place 14-15 March in Chile.

The purpose of the meeting is gathering not only foreign affairs ministers of the TPP negotiating parties but also China, South Korea and Colombia. Although no formal commitments are expected from the ministerial summit, it will provide a forum for Asian and PA countries to discuss ways to move forward in the economic front while counter-reacting to the protectionist narrative of recent months in the US.

Photocredits: yodiyim/FreeDigitalPhotos.net
Mexico is the biggest economy within the Pacific Alliance. Members praise in being the 7th or 8th largest economy in the world, but this is in great part attributed to Mexico’s membership.

This is why it is worth questioning the relevance that Mexico will give to the PA agenda during times of uncertainty regarding the future foreign policies and diplomacy by its neighbour and largest commercial partner the US.

As  Trump seems to follow through on some of his campaign proposals, Mexico will need to work out its strategy towards the US and define its corresponding offensive and defensive interests. It will soon become the number one priority of Mexico’s foreign policy which could deviate the attention from the PA implementation.

One scenario is if the NAFTA renegotiation takes place. Renegotiation would be a time-consuming endevour that would demand extensive public consultations and the involvement of several interest groups. As some experts have pointed out, this would be the only way to reach a deal that looks after the defensive and offensive interests of Mexico while balancing the negotiation with the US. The original NAFTA negotiations took a long time, and general wisdom suggests that similar agreements take at least two years or more to be concluded and the same time to enter into force. If TPP (Transpacific Partnership) was at the forefront of the main concerns of trade officials in Mexico, its place will be taken by NAFTA renegotiation instead of PA implementation. This scenario is still uncertain because future renegotiation has been bogged down with the recent announcement by President Trump that the construction of the border wall with Mexico will commence soon. In the meantime, Canada has signalled an intention to renegotiate a trade deal with the US with or without Mexico in it.

NAFTA update could bring indirect benefits to the PA by pushing additional regulatory and domestic policy reforms. However, this outcome is contingent on the approach taken by a future negotiation between the three NAFTA members and final approval by the US Congress.

A second scenario is that tensions between Mexico and Trump will escalate with the implementation of further measures by the latter that follow a populist and nationalist approach to its role in the presidency. This situation will likely push Mexico to divert its economic dependency towards more diversified markets in Asia, Europe and down in Latin America. This would be a process that takes time and for which Mexico and the Mexicans are not well prepared.

Up to this point, Mexico has not signaled an interest in becoming the leader driving the progress of the PA, despite its economic power that would suggest it as the natural leader. This is due to some extent with the lower levels of economic interdependence and commercial ties with its South American counterparts. There are no real economic incentives that would retribute on that leadership. However political pressures of the current relations with the US could trigger more proactive actions by Mexico to implement the free markets that PA attempts to pursue.

Time will tell…

Sources: wilsoncenter.org

wilsoncenter.org

latinamericagoesglobal.org

Photocredits: domdeen/FreeDigitalPhotos.net
President Bachelet has recently expressed particular interest in Argentina becoming a PA member, and as Pro Tempore president of the integration mechanism will devote efforts to this end. Let’s remind us that since the second semester of 2016 Argentina officially became an observer of the mechanism.

However, going beyond the political rhetoric of presidents we need to consider the long-term economic and institutional implications for the PA in this scenario.

Despite efforts by the Argentinian president to signal a change in foreign commercial policy, there is a lot of uncertainty as to whether this is a move reflecting a shift in state policy or rather a short term policy of Macri’s government. Uncertainty on the continuity of this policy after the long lasting protectionist approach of the Kirchner era would not contribute to ensuring stability in this front for the PA. The PA is an integration model that has clearly characterised itself by the alignment of its members regarding commercial foreign policy and development approaches. Changes in unconsolidated state policies by a newcomer such as Argentina could not only slow down the pace but lead to stagnation, as seen in previous integration experiences.

On the other side of the table, Argentina should and will probably focus on putting things in order within Mercosur after Venezuela’s suspension from the integration scheme. This situation triggered a most recent institutional crisis for Mercosur and Argentina’s delegation of the pro-tempore presidency. Joining the PA as a full member would only represent another example of ‘the scape forward approach’ that Latin American governments and states often take towards regional integration.

Finally, I am not sure that with the short length of pro-tempore presidencies within the PA Chile should be investing efforts into extending the number of countries in the PA rather than setting and implementing a work agenda that could strengthen the economic ties and other integration areas within the already existing members. People might say these are not excluding issues but they de facto could be when limited human resources are devoted to performing multiple tasks like is the case in the PA. There is a need to prioritise efforts and areas of work.

The issue could be just part of the rhetoric accompanying the recent presidential visit of Bachelet to Macri, but places on the stage a major missing factor: a clear policy line and criteria regarding new members accession/entry to the PA.

Is the PA ready for the newcomers?

I look forward to your comments on this issue.

Sources: panampost.com

reuters.com

Photocredits: watcharakun/FreeDigitalPhotos.net
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