Latin America Advisor

A Daily Publication of The Dialogue

Will the Pacific Alliance Strengthen Ties With Asia?

The flags of Pacific Alliance countries, including Mexico and Colombia. Singapore soon expects to sign a free trade deal with the Pacific Alliance, which consists of Peru, Chile, Mexico and Colombia. // File Photo: Pacific Alliance.

Singapore and the Pacific Alliance trade bloc—consisting of Colombia, Peru, Chile and Mexico—will sign a free trade deal by year-end, Singaporean Minister of State for Trade and Industry Alvin Tan said last month. The Pacific Alliance seeks to offer competitive advantages for international business with “a clear orientation toward Pacific Asia,” according to its website. What is the state of the Pacific Alliance’s trade relations with Asia beyond China, and what factors are driving cooperation? How do Asian nations view the Pacific Alliance, especially amid political transitions in Peru this year and elsewhere next year? What are the prospects for growth of broader Latin America-Asia trade in the medium and long terms?

Luz María de la Mora, undersecretary for foreign trade at Mexico’s Economy Secretariat: “Four Latin American countries created the Pacific Alliance (PA) to promote growth and development by taking advantage of economic integration opportunities and with the aim of building bridges to the Asia-Pacific region, as it offers the most promising perspective in terms of economic growth and innovation. In fact, when we look at export forecasts for 2021, the IMF finds that while exports in Latin America will grow 1.3 percent, in Asia they will grow 6.7 percent. As PA members, we are determined to build bridges with Asia-Pacific countries, as they are an engine of economic activity. This is why in 2017 we decided to start negotiations with countries such as Singapore, Australia and New Zealand, for them to become associate states to the PA. We are very close to concluding our first negotiation with Singapore. The PA represents a potential market of 230 million people. We export $627 billion to the world and account for 38 percent of foreign direct investment in Latin America, which can complement trade and investment opportunities with partners in Asia in sectors including agribusiness, chemicals, vehicle production, auto parts and services, to name a few. We have also developed a cooperation agenda focused on trade facilitation, SME development, education and innovation through capacity building/sharing of technical expertise with eight Asia-Pacific countries that currently hold PA observer status—Korea, the Philippines, India, Indonesia, Japan, China, Singapore and Thailand. Building bridges with countries in the Asia-Pacific region is a safe bet for the Pacific Alliance to consolidate itself as the most forward-looking integration mechanism in Latin America and a way to promote the economic growth, development and well-being of our countries.”

Margaret Myers, director of the Asia & Latin America program at the Inter-American Dialogue: “The Singapore-Pacific Alliance agreement is positive news for both Singapore and the Pacific Alliance (PA) bloc, especially at a moment when the bloc is grappling with many pandemic-related economic challenges. Singapore and PA companies envision expansion of trade in agricultural and technological products, in particular, but also broader cooperation on infrastructure and urban solutions. For Singapore, which already has trade arrangements with Chile, Mexico and Peru, one important objective is to facilitate more trade with Colombia. Another top aim is to position itself as something of a gateway for would-be PA investment in Asia, including in China, where market access has been challenging for many. Looming over the soon-to-be-signed pact is the pending political transition in Peru, of course, which could possibly derail the long-negotiated agreement. Peruvian President-elect Pedro Castillo has spoken openly about mining and other appropriations, and his party, Perú Libre, previously supported a review of Peru’s existing trade arrangements. That said, Mexico’s Andrés Manuel López Obrador has upheld that country’s commitment to the bloc, despite some early concerns that he would neglect or even abandon the regional initiative. As it turns out, the Pacific Alliance supports López Obrador’s interests in increasing intraregional trade and opening up to China and other Asian markets, to diversify trade away from the United States.”

Hari Seshasayee, global fellow at the Woodrow Wilson Center: “Although India is an observer member of the Pacific Alliance, its relationship with the group’s member countries, Chile, Colombia, Peru and Mexico, continues to be driven by bilateral—rather than multilateral—ties. The Pacific Alliance countries account for 35 percent of India’s trade with Latin America in the 21st century. India also has sizable investments in Mexico ($3 billion) and Colombia ($1 billion) and a smaller presence in Peru and Chile. With the exception of Brazil, which enjoys a strategic partnership with India, India-Latin America relations are shaped by economic diplomacy, whereby India’s private sector takes the lead and is supported by the government in increasing trade and investments. This is a contrast to China-Latin America relations: India’s economic diplomacy comes with no strings attached, has no political or ideological roots, and the investments are generally in the region’s manufacturing, value-added and service sectors, rather than in extractive industries or infrastructure. India’s most significant economic linkages with Latin America are in pharmaceuticals, automobiles and information technology, while it imports petroleum, vegetable oils, minerals and some value-added products. Yet, much more can be done. India does not have a single free trade agreement with a Latin American country, and the existing preferential trade agreements with Chile and Mercosur remain limited in scope. New Delhi should devise a specific Latin America policy, akin to its Africa or ‘Look East’ policy. This increase in political will from India could be the catalyst needed to upgrade its relationship with Latin America in the long term.”

Benjamin Creutzfeldt, lecturer of Chinese politics at Universidad del Pacífico in Lima: “The trade deal with Singapore is a reassuring vote of confidence in the Pacific Alliance as an institution for the freer movement of people, goods and money. This is especially true at a time when the member countries—and indeed all of Latin America—are facing a contraction of their economies amid the pandemic and political upheaval in a variety of forms: widespread protests prompted by poor government decisions in Colombia, a deep rift after unconvincing elections in Peru, the search for a new constitution in Chile and a multitude of unabated security challenges for Mexico. Asian countries have their share of internal insecurities but generally keep a far tighter lid on them. From East Asia, Peru has not been viewed with the same concern as in the West: neither a descendant of Japanese immigrants with dictatorial tendencies nor an Indigenous school teacher with socialist aspirations were likely to spook observers from across the Pacific. Given the physical distance from Latin America, the political ups and downs have done little to darken the view from Asia. As such, converging interests on either side—minerals, fuels and food from Latin America in exchange for cash, investments and tech knowhow from Asia—bode well for continued bilateral relations and very real trans-Pacific trade and exchange. Multilateral institutions are a preferred venue for the formal and the informal interactions that help Asian countries thrive, even if they often lack the ‘rules’ and efficiency that Europe and the United States desire. The Singaporean trade bloc with the Pacific Alliance is testament to this format, and similar initiatives will help Latin America-Asia trade grow and adapt without challenging existing balances of power.”

Angela Torres-Andresen, founder and director of the Latin American Chamber of Commerce in Singapore: “Singapore’s relations with the countries of the Pacific Alliance have been active. In fact, the initial Trans-Pacific Strategic Economic Partnership inked in 2005 comprised four countries: Brunei, Chile, New Zealand and Singapore; this free trade agreement (FTA) was the origin of the current Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CTPP), in which Singapore, Chile, Peru and Mexico are member states. Singapore and Peru had entered an FTA in 2009. The Singapore-Pacific Alliance FTA will mark the first one between Singapore and Colombia. Singapore is a free port, so FTAs are more than a tariff-reduction mechanism. For a nation that relies on international trade and investment, FTAs are the core of its infrastructure. The entrance of Singapore as the first associate state to the Pacific Alliance marks the opening of a highway built by the government for companies to drive their negotiations under a safe and guaranteed set of rules and comparative advantages. Due to Singapore’s pivotal role in the Southeast Asia region, this FTA is also a close-up relation between the Pacific Alliance and the Association of Southeast Asian Nations (ASEAN), and an opportunity for the Pacific Alliance to learn about ASEAN integration. Trade and investment between the regions will take place when the private sector engages in learning about the business opportunities in each region. This is a task with which entities such as the Latin American Chamber of Commerce in Singapore are active, and we have seen companies crossing the Pacific in both directions.”

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