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Why the Pacific Alliance Puts Mercosur to Shame

By: María Teresa Romero - @mt_romero - Aug 21, 2014, 4:27 pm
The Pacific Alliance has become one of the most dynamic economic blocs in the world.
The Pacific Alliance has become one of the most dynamic economic blocs in the world. (PA)

EspañolSince the inception of the Pacific Alliance (PA) on April 28, 2011, many economists have envisioned not only a formidable counterweight to the Southern Common Market (Mercosur), but also a potentially more influential economic bloc.

These forecasts were made on the basis that the PA emerged from an alliance of four countries — Mexico, Colombia, Peru, and Chile — with strong political and economic ties. Along with observer nations Panama and Costa Rica, they hold a shared vision regarding the rule of law and democracy. They have a common desire for substantial integrated trade liberalization with the strongest economies in the world, especially emerging Asian markets.

These countries had also previously built strong commercial relationships with each other, embodied by the 2007-2011 initiative known as the Pacific Arc. Alliance member nations have committed themselves to an integration initiative with clear, realistic, and nonpartisan strategic objectives, as stated within the Agreement Framework signed during the Fourth Summit of the Pacific Alliance in June 2012. It was an unquestionably transparent process that laid the foundation of the trade bloc, as well as the mechanisms for revenue and rules.

At the time the Pacific Alliance was first launched, the Mercosur trading bloc was at one of its lowest points in its history, and without a free-market oriented economic strategy. Originally founded in March of 1991, the Southern Common Market is currently comprised of Brazil, Argentina, Venezuela, Paraguay, and Uruguay.

In it’s 20 years of existence, Mercosur has failed to create deeply integrated economic structures, remaining barley more than a customs union.

Mercosur was divided, politicized, and bureaucratized, and has since then been perceived to be in a perpetual state of stagnation. It was no accident that in November 2011 Uruguayan president Jose Mujica claimed the alliance was “moving neither backward or forward,” and threatened to pursue alternative paths of economic integration for his country.

After several years of attempts, Venezuela joined Mercosur in 2012.
After several years of attempts, Venezuela joined Mercosur in 2012. (Wikimedia)

Only a year after its birth, the Pacific Alliance was already showing signs of becoming a more effective economic alliance than Mercosur, despite the latter representing a larger combined population (276 million inhabitants compared to 208 million) and collective GDP (US$3.3 billion versus the PA’s $1.9 billion).

Additionally, Mercosur’s GDP growth has not kept up with the pace of the Pacific Alliance. Economic analyst Andrés Oppenheimer notes: “The four member countries of the Pacific Alliance had a combined growth rate of 5 percent, while the Mercosur countries grew at an average rate of 2.9 percent … amid a period of general global economic deceleration, commercial activity between countries of the Pacific Alliance grew by 1.3 percent this past year, while trade amongst Mercosur nations fell by 9.4 percent.”

It is projected that in 2014 the PA will continue to outperform Mercosur. “The Pacific Alliance will grow at a rate double that of Mercosur in 2014-2015,” according to a study by Bilbao Vizcaya Bank (BBVA Research).

“Three months ago we revised a slightly highly projected growth rate for the Pacific Alliance to 3.8 percent in 2014 and 3.7 percent in 2015, compared to 1.5 percent and 1.8 percent, respectively, for Mercosur.”

Most of the research of the two competing economic alliances in Latin America suggests that the Pacific Alliance has a greater probability of continued, sustainable success that could alter the Latin-American economic map.

There are many indications of this, but as Nicolás López noted in a recent article, the fact that members of the PA have actually committed to free-market liberal policies that produce economies with low levels of inflation, and have been focused on economic development rather than political gain, has given the Pacific Alliance an important comparative advantage over Mercosur countries.

Translated by Alex Clark-Youngblood.

María Teresa Romero María Teresa Romero

Romero is a journalist with a PhD in political science, specializing in international politics. She's a professor at the Central University of Venezuela, a columnist in several Venezuelan and international newspapers, and the author of several books. Follow her at @MT_romero.