Pacific Alliance: Integration Paves The Way For Enhanced Competitiveness

BMI View: The Pacific Alliance is fast becoming Latin America's pre-eminent trade bloc, particularly following an ambitious plan to eliminate most tariffs on goods announced in February. We believe that there is still significant room for integration between member states in the coming years, highlighting the services and capital sectors as areas that will require further attention in order to increase investment and realise supply chain efficiencies.

Over the last 12 months, the Pacific Alliance (PA) - a trade bloc consisting of Colombia, Chile, Mexico and Peru - has continued to differentiate itself from other regional integration organisations in Latin America by promoting a pragmatic, business friendly agenda and following through on proposed reforms in a timely manner, something which has eluded regional heavyweight Mercosur in recent years ( see 'Regional Divide To Widen Between Pacific Alliance And Mercosur', May 30 2013). In addition, the bloc's focus on external trade with strategic partners, such as Asia, will provide a strong, long-term growth market for exports, while its lack of geographic restrictions for membership open the door for a broader agenda in the long term. Moreover, the already large size of the PA makes it an attractive market for investors, as we forecast the member states' share of regional GDP to rise to a notable 40.9% by 2015, from an estimated 38.4% in 2013, before declining modestly towards the end of this decade.

We believe that recent steps have put the PA on track to become the pre-eminent trade bloc in the region in the coming years, as it looks to further break down tariff and non-tariff barriers to regional trade, promote visa-free travel, and the free flow of services and capital with a strong commitment by member states. That said, we caution that wavering dedication on the part of heads of state could see the Alliance's rapid progress slow, particularly in the implementation phase of a significant reduction in goods tariffs, which is expected to run until 2015. Below we assess how far the PA has come in several key areas, how much further integration has to go, as well as of the potential benefits and challenges.

Pacific Alliance To Become A Major Player
Latin America - Nominal GDP, US$bn

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This article is tagged to:
Sector: Country Risk
Geography: Latin America, Chile, Colombia, Mexico, Peru

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