Latin America's Newest Experiment in Tearing Down Trade Barriers
WHY YOU SHOULD CARE
Global negotiations to advance free trade have stalled, so some nations are moving ahead regionally. Thus, the Pacific Alliance was founded.
By Wesley Tomaselli
Colombian industrial designer Carlos Maya grabs his luggage, steps off the plane and, like other passengers arriving in Mexico City, heads straight for the immigration line. But Maya’s Colombian passport only gets a quick review, a stamp, and that’s it — no visa required. He’s free to stay for half a year. Why’s he in Mexico? Maya’s selling machinery, and hopes to make a killing under a new trade deal uniting Mexico, Colombia, Peru and Chile.
As a Colombian, “You don’t need a visa for Mexico,” says Maya. “Now it’s much easier to reach that market, because they’ve opened their doors to us.”
The aim: to turn Latin America’s Pacific Rim states into an economic club following the spirit of the European Union.
Maya is the founder and president of Ingeneumática, a Medellín-based company that designs and manufactures pneumatic machines. One of his most recent designs is hard-core Latin American: an automatic empanada-maker. The savory pastry is emblematic of Latin American countries, and the Colombian designer wants to capitalize on the region’s growing appetite. He says his machine turns out 60 empanadas per minute, and he has started to export them around the region.
Maya is part of a growing class of small and medium businesses in Latin America benefiting from a new visa zone tying together Mexico, Colombia, Peru and Chile. The zone is a regional economic bloc called the Pacific Alliance and includes what many consider to be the most open and successful economies in the region. The aim: to turn Latin America’s Pacific Rim states into an economic club following the spirit of the European Union. Negotiations to promote trade under the World Trade Organization have stalled, scuttling a broader vision of globalization and forcing nations around the world to work with like-minded neighbors in the pursuit of the tremendous benefits offered by expanded trade.
The Pacific Alliance came to life after the leaders of Mexico, Colombia, Peru and Chile shared the vision in 2011 and signed it into action in 2012. Since then, it’s started to attract others: Costa Rica began its path to membership earlier this year. The four founding members have a combined GDP of $2.11 trillion, nearly matching Brazil’s GDP of $2.24 trillion. In 2013, Mexico, Colombia, Peru and Chile outpaced Brazil in GDP growth on average.
The Pacific Alliance does a couple of things that excite people like Maya. First, it knocked off 92 percent of tariffs among regional partners, which counts as one of the early concrete achievements of the group. The bloc also integrates the four countries’ stock markets and waives visa requirements for business professionals, academics and students who travel and participate in programs within member countries. Now, much like Europe’s Schengen Area, where border controls are dropped, businesspeople like Maya can visit a member country for up to 180 days without a visa, lowering business costs and reducing the risk of delays.
Success … will be measured … by how much trade and investment takes off among alliance members.
“The four countries that launched the Pacific Alliance are focused on globalization and welcome openness to the global economy,” says Eric Farnsworth, vice president of international business association for the Western Hemisphere Council of the Americas.
“If you look at why the Pacific Alliance is so important, it really is an economic integration agreement, so … it’s a bit of an experiment in the context of Latin America,” says Farnsworth. Success for the group will be measured in the years ahead by how much trade and investment takes off among alliance members.
The Pacific Alliance is just the latest manifestation of 19th-century Latin American independence leader Simón Bolívar’s dream of a unified Latin America. That same sentiment is what late Venezuelan President Hugo Chávez tapped into when he came into power and dubbed his basket of social policies “The Bolivarian Revolution.”
Taking advantage of the new openness, Colombian Adriana Villar graduated from university and, at 23, landed a one-year contract with a Santiago-based medical software company called Dentalink. She’ll work six months in Chile, and then do another six in Colombia to promote business development in Bogotá and Medellín, the country’s two main cities. The last time Latin American countries took a stab at integrating the region was in 1991 with Mercosur. But Farnsworth says Mercosur “is a model — rightly or wrongly — broadly considered protectionist,” something the Pacific Alliance — with an openness toward Asia — rejects. It also got a bad rap when it suspended Paraguay and admitted Venezuela in 2012.
Cristian Huertas, a 25-year-old Colombian project manager with Mexico City-based Angel Ventures Mexico, believes that “with the middle class growing (in Latin America) … financial services like mortgages and insurance are one of the best possibilities for growth … Web-based companies too.”
Huertas already has a start-up on the side and thinks there are just as many good opportunities in Pacific Alliance economies as there are in trade deals with the U.S. or Europe. He says that Angel Ventures Mexico recently opened a Peru office, and now has a joint venture in Colombia. Huertas says the company is flirting with the idea of expansion into Chile as well.
Back in Medellín, Carlos Maya tells OZY his company grew by half in 2013. Ingeneumática currently sells most of what it designs and produces domestically, and exports just 4-7 percent of its machinery. But he expects exports will hit around 20 percent by the end of 2015.
“We’re looking to develop exports to Chile, Peru and Mexico … and we’re starting to develop really good relationships with them,” says Maya.
Successful replication of these little successes, many thousands of times over, will determine whether the Pacific Alliance fades away or helps to realize at least part of Bolívar’s dream.
Wesley Tomaselli is a Bogotá-based freelance journalist interested in Colombia and Latin America. You can find him here: wesleytomaselli.com.