Pacific Alliance: the cat bonds and FTA negotiations
Two developments have taken place in recent days concerning the progress of the Pacific Alliance: first the issuance of cat bonds for earthquake-induced damages. Second, the new round of negotiations with candidates to associate members on the last week of January. We will refer to each of them briefly.
A positive outcome is the release of Catastrophic bonds to cover the four members against earthquakes with a total coverage of US $ 1.3 billion. The World Bank-IBRD issued the first multi-nation operation on Wednesday 7 February. According to the Bank, this is the second largest issuance of cat bonds in history.
Coverage for Chile, Colombia and Peru will be for three years while Mexicos’ coverage will be two years. The cat bonds issuance is worth celebrating as a clear example of how regional cooperation could contribute to support national capabilities. It is also an expression of the problem-based approach taken by the Pacific Alliance in the aftermath of the intense earthquakes suffered by Mexico in 2017 and Chile in 2015.
The second round of negotiations towards ‘commercial agreements of high standards’ between the PA members as a whole and the four candidates (Australia, New Zealand, Canada and Singapore) took place in Gold Coast, Australia, from the 29 January to the 2 February 2018.
It gathered government officials of the eight countries to discuss disciplines in areas such as: market access on agricultural and industrial products, trade facilitation, rules of origin, sanitary and phytosanitary measures, technical barriers to trade, services, investment, trade remedies, public procurement, cooperation, environment, labour, and institutional matters of the agreements.
Issues of regulatory cooperation will be dealt with through dedicated product annexes on sectors of strategic export interests. These disciplines and the approach are not strange to any of the negotiating parties from their practice of previous FTAs. However, for the PA as a whole, the new note would be negotiating dedicated disciplines on competition, SMEs, and state-owned enterprises, which were not included in the internal commercial protocol. They presumably will draw extensively from the TPP agreement (we should say the CP-TPP now). Nonetheless, new disciplines would be envisioned in the area of gender and trade as it seems to be a negotiating interest for Canada.
It is not our expectation that the agreements negotiated here would start from scratch, it is not for the parties to reinvent the wheel, however, some incremental innovations regarding rules would be desirable in many of the above-mentioned areas where the TPP falls short to set an ideal or ‘gold standard.’
First, by adding facilitation mechanisms for instance regarding the movement of business persons, or for services trade. Second re crafting provisions to bring more clarity on issues that were left vague intentionally, because of difficulties in reaching consensus over a broader membership when negotiated in the context of the TPP. Third, by strengthening the level of some commitments, parties could make improvements that set a standard for future agreements.
On a separate note, a real test for the Pacific Alliance will be to be able to consolidate and carry on with a unified negotiated position throughout the entire process as sensibilities may arrive in some economic sectors, and they might differ from one to another member. Chile will host the next round of negotiations on 5 March 2018 and time will test the cohesiveness of the mechanism.