Pacific Alliance Nations Seek Trade Agenda With Mercosur

The four presidents of Latin America’s $2.1 trillion Pacific Alliance bloc said integration is a tool for fighting inequality and they will seek a common agenda with the Mercosur group, led by Brazil and Argentina.

The leaders of Mexico, Colombia, Peru and Chile said closer ties will boost growth that can reduce poverty in what Chilean President Michelle Bachelet called the most unequal region of the world. Pacific Alliance officials plan to meet with Mercosur counterparts in November to discuss areas of agreement, she said yesterday at the Bloomberg Latin America Forum in New York.

“We all want economic growth but understand it’s an instrument for development,” Bachelet, 62, said. “We’re focused on integration and amplifying markets.”

Any agreement between the three-year-old Pacific Alliance and Mercosur, whose members include Venezuela and Bolivia, would require sewing together two blocs that have pursued different development policies. While the Pacific Alliance nations have free-trade deals with the U.S. and are seeking to expand in Asia, Mercosur has become a primarily political grouping that has failed to reduce trade barriers.

The Pacific Alliance bloc “is not a political alliance, it’s pragmatic,” Peru’s President Ollanta Humala said. “We’re optimistic that at some point we can create more than a customs alliance.”

Failed Accord

An attempt to create a hemisphere-wide free trade agreement, including the U.S. and Canada, died in 2005 after Venezuelan, Brazilian and Argentine leaders stymied the initiative at a summit in Mar del Plata, Argentina.

Working with the Mercosur countries would require their leaders opening nations that have typically had higher tariffs and more government intervention in the economy than the Pacific Alliance, said Bill Reinsch, president of the National Foreign Trade Council, a Washington-based group that advocates for companies.

Negotiating trade issues with the Mercosur countries “has been tough,” he said in a telephone interview. “Brazil is difficult, Argentina is harder, and Venezuela is probably the worst, from an American point of view. The Pacific Alliance countries don’t have all of the same diplomatic issues as the U.S., so it may not be as tough for them.”

Faster Growth

The four nations of the Pacific Alliance account for 37 percent of Latin America’s $5.8 trillion economic output, compared with 39 percent for Brazil. In February they agreed to eliminate 92 percent of tariffs on goods traded between them, with the rest to be phased out. The Mercosur bloc, which has been negotiating a trade accord with the European Union since the 1990s, has a gross domestic product of more than $3 trillion.

Venezuela, Brazil and Argentina will average growth of 0.6 percent this year, according to the International Monetary Fund’s World Economic Outlook. Chile, Peru, Colombia and Mexico will average growth of about 4.2 percent, the report said.

The latter four nations “have used the Pacific Alliance to attract the attention of investors who would otherwise think that Latin America was Brazil, Argentina and Venezuela,” said Samuel George, a Latin America analyst at the Bertelsmann Foundation in Washington. “If the Pacific Alliance countries could negotiate access to these Mercosur countries, it would be a tremendous business opportunity.”

Costa Rica

Costa Rica is in the process of becoming the fifth member of the bloc, while Panamanian President Juan Carlos Varela said yesterday in an interview that he discussed joining the alliance with Bachelet.

The Pacific Alliance countries are also working to promote the Latin American Integrated Market stock exchange network, or MILA. Chile, Colombia and Peru began trading through the network in 2011, giving brokerages in each nation access to equities listed on the other countries’ exchanges.

Mexico’s exchange will be able to integrate with MILA as soon as November, Pedro Zorrilla, the head of Bolsa Mexicana de Valores SAB’s institutional relationships, said in a Sept. 19 interview. Such a move will improve liquidity on the exchange network, Bachelet said yesterday.

The four leaders stressed the role of integration in reducing inequality, which they all said was a priority of their respective governments.

“In Latin America in general and also in our countries, there is a lot of inequality,” Colombia President Juan Manuel Santos said. The Pacific Alliance’s goal is “healthy” economic growth that takes people out of poverty, he added.

“It is essential to have higher growth rates in a sustainable fashion and this is a great platform, the Pacific Alliance, that contributes to achieving that goal,” Mexican President Enrique Pena Nieto said.

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