Pacific Alliance

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Pacific Alliance Regional Integration in Latin America and the Caribbean: The role of the Pacific Alliance Marcelo Dolabella International Trade and Integration consultant José Durán Lima Chief of the Regional Integration Unit, Division of International Trade and Integration, ECLAC, United Nations Seoul, November 29 2019 Summary • Global and regional perspectives. Trade tensions worsen and regional trade falls. • Regional Integration. Current status and the role of the Pacific Alliance. • Regional Integration Challenges in Latin America. Implications for LAC-Korea cooperation Global and regional perspectives The slowdown of global trade has worsened due to the build-up of trade barriers Year-on-year change in the volume of global Coverage of import restriction measures, merchandise trade, January 2012–July 2019 October 2012–December 2019 (Percentages) (Billions of dollars) 1200 1000 1,029 800 728 600 588 400 214 301 201 228 340 200 101 0 79 Oct 2012- Oct 2013- Oct 2014- Oct 2015- Oct 2016- Oct 2017- Oct 2018- May 2019- oct 2013 oct 2014 oct 2015 oct 2016 oct 2017 oct 2018 may 2019 dic. 2019 a Monto nuevas medidas Restricciones acumuladas desde octubre de 2017 Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of World Trade Organization (WTO), Report of the TPRB from the Director- General on Trade-Related Developments (mid-October 2018 to mid-May 2019), Source: Economic Commission for Latin America and the Caribbean (WT/TPR/OV/W/13), Geneva, 2019, and ECLAC estimates for the period 16 May to 31 (ECLAC), on the basis of Netherlands Bureau of Economic Policy Analysis December 2019. (CPB), World Trade Monitor [online database] https://www.cpb.nl/en/worldtrademonitor. a This estimation considers only measures implemented and those officially announced up to 1 September 2019. In 2019, the value of regional trade is projected to fall for both exports and imports Latin America and the Caribbean: annual variation in merchandise trade by price, value and volume, 2000–2019a Exports (Percentages) Imports 30 40 20 30 20 10 10 0 0 -10 -2 -10 -3 -20 -20 -30 -30 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 Volumen Precio Valor Volumen Precio Valor Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of official information from customs offices, statistical institutes and central banks of the countries. a The figures for 2019 are projections. Internal and external factors constrain the region’s export performance DOMESTIC FACTORS EXTERNAL FACTORS Production and export Deficient Slowdown in Low GDP Trade structure infrastructure international growth tensions anchored in and logistics demand commodities •Slowdown in exports, imports and investment •Fall in raw material prices •Deepening of the recessionary demand cycle •Heightened financial and exchange-rate volatility •Trade diversion Source: Economic Commission for Latin America and the Caribbean (ECLAC) The region’s weak growth mirrors the sharp contraction in intraregional trade Latin America and the Caribbean: annual variation in the value of intraregional exports and exports to the rest of the world, 2007–2019a (Percentages) 40 30 20 10 0 -1 -10 -10 -20 -30 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Intraregional exports Exports to the rest of the world Source: ECLAC, on the basis of official figures from the countries’ central banks, customs offices and national institutes of statistics. a Figures for 2019 are projections. Intraregional trade remains well below its maximum levels registered in 2011–2013 Latin America and the Caribbean: intraregional exports of goods, 1991–2019 a (Billions of dollars and percentages of total goods exports) Exportaciones intrarregionales Participación exportaciones intrarregionales en exportaciones totales (eje derecho) 250 25 200 20 15.5 150 15 100 10 50 5 0 0 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 MERCOSUR creation, Andean Community relaunch Crises Commodity supercycle Economic slowdown Source: ECLAC, on the basis of official information from countries of the region, the Andean Community and the Central American Common Market. a Figures for 2019 are projections. Regional Integration Latin America and the Caribbean are 3 sub-regions in one, and with different export patterns Caribbean Mexico & Central America Services Manufactures Atlantic Ocean Pacific Ocean South America Total area: Primary products approx. 20.5 million km2 EU (28) and ASEAN: 4.5 million km2 each The architecture of regional integration in LAC is very complex DR-CAFTA Jamaica Dominican Rep. Trinidad and Tobago USA CACM Guatemala USMCA El Salvador Honduras Bahamas Barbados Canada Costa Rica Saint Lucia Guyana Mexico Antigua & Barbuda Belice Nicaragua S. Vicent Saint Kitts & Panama ALBA & The Granadines CARICOM Nevis Suriname Andean Cuba Grenada Haiti Community Pacific Dominica Surinam Bolivia, P.S Venezuela Alliance Ecuador Colombia Brazil Peru Paraguay Chile MERCOSUR LAIA Argentina (ALADI) Traditional Regional Integration schemes in LAC Caribbean Community (1973) Central American Common Market (1960) MERCOSUR Andean (1991) Community (1969) The Pacific Alliance (PA) – Overview (2018) • Created in 2011 • Member countries: Chile, Colombia, Mexico and Peru • Population: 231 million inhabitants • 36% of LAC’s population • GDP: US$ 2.7 trillion • World’s 8th biggest economy • 36% of LAC’s GDP • GDP per capita: US$ 18,921 • Foreign Direct Investment: US$ 60.8 billion •33% of total LAC FDI inflow • PA members have signed 40 Free Trade Agreements with 80 different countries Source: World Population Reference 2018, World Bank Development Indicators, ECLAC (2019a) , Pacific Alliance (2019) Objectives of the Framework Agreement of the Pacific Alliance 1 - Build a deep integration area • advance progressively towards the free circulation of goods, services, capital and persons 2 - Boost growth, development and competitiveness of member states’ economies • improve welfare, reduce inequalities and enhance social inclusion 3 - Become a platform for political articulation, economic and political integration and projection to world • emphasis on the Asia Pacific region Which is the value added of the PA’s Commercial Protocol? • Wide coverage comprising, among others: • trade in goods; • services; • investment; • government procurement; • trade facilitation (Single Window System); • maritime transport; • telecommunications; • financial services; • electronic commerce. • cumulation of origin • Creation of the Business Advisory Council (CEAP in Spanish) Market access: liberalization is already a reality that will accelerate in the coming years. • Approximately 88% of intra-PA trade (2014) ; 97% in 2020 • Intra-PA average applied tariff: 0.45% Pacific Alliance: Share of duty free imports in intra Pacific Alliance trade (In percentages of total imports) 99 100 98 98 98 97.6 98 98 97 96 97 95 95 94 95 93.7 90 84 85 80 75 Chile Colombia Mexico Peru Pacific Alliance 2016 2020 2030 Source: Duran and Cracau (2016) .Information from COMTRADE database and tax relief schedules of the Additional Protocol to the Framework Agreement Intra-PA trade accounts for less than 3% of PA’s total exports of goods Pacific Alliance: intraregional exports of goods, 1992–2018 (Millions of dollars and percentages of total goods exports) 25 Creation of the 4.5% Pacific Alliance 4.0% 20 3.5% 3.0% 15 2.5% 2.0% 10 1.5% 5 1.0% 0.5% 0 0.0% 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Intraregional Exports Share of intraregional exports in total exports Source: ECLAC based on COMTRADE data The share of intra-bloc trade in the PA is lower than in all other economic integration groups Intraregional exports of goods, 2017-2018a (percentages of total goods exports) European Union 64 USMCA 50 ASEAN+5 49 CACM 27 LAC 16 CARICOM 13 MERCOSUR 12 Andean Community 7 Pacific Alliance 3 0 10 20 30 40 50 60 70 Source: ECLAC with data from UN COMTRADE database. In the case of ASEAN+5, the figure is from 2016. a average Intra-PA economic interdependency is larger in services and FDI • Intraregional FDI flows represent 12% of total outflows. • Chile and Mexico are the main destinations. • An important portion of the FDI goes to the service sector (retail, construction, communications, finance) • Relevant firms based in Pacific Alliance countries: America Movil (Mexico); LATAM (Chile); AVIANCA (Colombia); • Intraregional trade in services represents 11% of total trade in services. That share increases to 17% if Mexico is excluded. • 28% for Peru; 17% for Colombia; 10% for Chile and 4,5% for Mexico. • In the business services sector, intra-PA share is larger (between 12% and 30%). Source: Duran Lima and Cracau (2016) Regional Integration Challenges in Latin America 76% of total intra-LAC trade receives preferential tariffs Mexico Honduras Dominican Republic MFN Tariff Guatemala El Salvador Nicaragua 24% Costa Rica Venezuela Panama Colombia Preferential Ecuador tariff Peru 76% Brazil Bolivia Paraguay Room for further integration Chile • Further Tariff reduction Uruguay • Agreements for harmonization/streamlining Argentina of rules and standards • Tackling infrastructure and Trade Facilitation issues (reduction of procedural costs) Trade costs of Non-tariff measures (NTMs) are larger than ordinary customs tariffs Latin America and the
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