Free Market Policies Yield Success for Pacific Alliance

August 14, 2014

Chile, Colombia, Mexico and Peru joined together in 2011 to form the Pacific Alliance, a trade alliance centered on free markets. In a new report, Nicolas Lopez, research associate with the National Center for Policy Analysis, explains why the Pacific Alliance has been successful.

In 1991, the countries of Argentina, Brazil, Paraguay and Uruguay formed the Common Market of the South, also known as Mercosur. Mercosur was an attempt to integrate the countries both economically and politically. In practice, Mercosur became a protectionist bloc, imposing high tariffs and setting up trade barriers. Since its inception, Lopez writes, the entity has signed only a single free trade agreement. In fact, its charter prohibits its members from signing trade agreements without the approval of Mercosur.

The Pacific Alliance has followed a very different path. The four countries did not concern themselves with politics, rather they focused on economic objectives -- the free flow of goods, capital and people -- that would benefit the members:

  • Ninety-two percent of goods traded between Pacific Alliances are free of tariffs.
  • Within 7 years, all tariffs on merchandise will be removed.
  • There are no travel visa requirements between Pacific Alliance countries, which has spurred tourism and further contributed to commerce.
  • Pacific Alliance countries have a low inflation rate, unlike Mercosur nations.

As a result of these policies, the Pacific Alliance countries have been the recipients of more than $71 billion in foreign direct investment, and they conduct half of the trade in Latin America. The Pacific Alliance nations also saw much greater stability following the 2008 economic crisis than did Mercosur.

According to Lopez, the Pacific Alliance's access to the Pacific Ocean presents opportunities for its members to reach out to Asian countries, who could become important trading partners. While Chile and Peru already export goods to China, Japan and South Korea, Colombia and Mexico have yet to expand their trading opportunities there.

Source: Nicolas Lopez, "Pacific Alliance Looks East," National Center for Policy Analysis, August 12, 2014.

 

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