With the signing of a regional trade pact by Mexico, Colombia, Chile and Peru this past Monday in Cartagena, Colombia, the four aforementioned members of the newly formed Pacific Alliance have agreed to the near term elimination of tariffs on ninety-two percent of the goods and services that are exchanged between their countries. Other, more sensitive items, that make up the remaining eight percent will be phased out over time.
With this most recent agreement, the Mexcan free trade network has expanded to cover upwards of forty different nations. In addition to the new Pacific Alliance and the NAFTA pacts, Mexico enjoys free trade with the entirety of the European Union, Israel and Japan.
Although Mexico has pre-existing, bi-lateral agreements with each of the signatories to the Cartagena Pacific Alliance group, (it signed an agreement with Chile in 1988, Colombia in 2011 and Peru in 2012), the purpose of this extension of Mexico’s free trade network aims not only to facilitate the interchange of goods and services among the four participants, but also to promote the unfettered flow of capital and people between four of Latin America’s most free market leaning economies. The combined economic activity of Chile, Colombia, Mexico and Peru makes up thirty-five percent of the Gross Domestic Product of all Latin American and Carribbean countries combined. Pacific Alliance group members also represent a consumer market of two hundred million consumers, and are responsible for fifty-five percent of the region’s export activity.
Morgan Stanley predicts that the new Mexican free trade network will grow at an annual rate of four and one quarter percent during the present year. This healthy rate of growth stands in contrast to the countries that make up Latin America’s other major trading bloc, Mercosur. Mercosur was established in 1991 by original members Argentina, Brazil, Paraguay and Uruguay. Venezuela became a full member of the trade alliance in 2012.
Mercosur countries such as Venezuela and Argentina, in particular, are presently experiencing contraction and recession, respectively, while Brazil’s growth is predicted to proceed at a modest two percent pace over the course of the current calendar year. Economists view the two trade alliances as being illustrative of the two differing approaches to economic governance that are found in Latin America, as well as elsewhere in the world. Mercosur countries view the State’s role in national economies as being somewhat expansive, while the new Mexican free trade network comprised of itself and three aforementioned partner governments tend to generally favor free market economic and trade policies.
Read the primary source for this post at Interntional Center for Trade and Sustainable Development.
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