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Latin America’s Only Hope for Free Trade

By: Contributor - Feb 3, 2015, 10:03 am

Español In a little under three months, the Pacific Alliance is set to celebrate its four-year anniversary. Founded on April 28, 2011, the Pacific Alliance is a trade bloc whose main is goal is to promote greater integration among its members through free trade.

Chile's strong commitment to free trade makes it a cornerstone of the Pacific Alliance. (Wikimedia)
Chile’s strong commitment to free trade makes it a cornerstone of the Pacific Alliance. (Wikimedia)

Comprised of countries such as Mexico, Colombia, Peru, and Chile, the Pacific Alliance represents a fundamentally different model of economic integration when compared to the Venezuela-backed ALBA and Brazil-dominated Mercosur. All four of these members have thoroughly rejected the populist model of protecting industries from foreign competition, instead opening themselves up to free trade and commerce.

Unfortunately, Latin America’s history has been marked by multiple PanAmerican schemes to integrate the region that end up failing time and time again. Arguments abound for why these measures fail: Cultural factors, US imperialism, and geographical constraints are regularly cited. But these explanations are deterministic, making the region seem like a victim of circumstances and not like the sole owner of its destiny, which it is. Ultimately, Latin America’s failure or otherwise to develop and integrate is its own responsibility.

The principal reasons why many nations attempts to further integrate have fallen flat have to do with their constant refusal to embrace free trade policies, and failure to observe the rule of law. The Pacific Alliance, even in its infancy, represents the best hope for Latin America to achieve a genuinely PanAmerican vision for the region and be able to enjoy the fruits of economic prosperity.

The Foundations of Success

The Pacific Alliance is made up of countries that have not only accepted free trade policies but are also committed to promoting democracy and the rule of law. Spearheaded by Chile — the country with the most economic freedom in Latin America, and recently joined Mexico as the region’s only countries that are members of the OECD — the Pacific Alliance has made it clear that the populist route to development is not on the agenda. Even though the other members of the PA may not be as developed as Chile, they have each taken steps in recent years to get their economic houses in order and clamp down on political corruption.

Free trade is the fundamental bedrock of economic prosperity. Take a look at any of the developed, first world countries throughout the world. Low tariff regimes, few barriers to travel, and little to no capital controls characterize the overwhelming majority. Economic protectionism and other barriers to commerce are economic primitivism, plain and simple. Following the protectionist formula is a one-way ticket to economic mediocrity and underdevelopment. There are no short cuts and easy ways to prosperity. Countries either open up or they cave in.

The Pacific Alliance can look to the European Union (EU) for inspiration in creating an integration pact. What began as a humble trade pact among six nations, the EU has effectively morphed into a wide-ranging politico-economic union made of 28 countries. Despite the difficult situation it finds itself in, the EU has brought historic levels of stability to a region that historically has been torn by constant warfare. What the Alliance can learn from the EU is to emphasize wholesale economic liberalization and the promotion of the rule of law among members. On the other hand, it should be wary of following the EU’s utopian vision of trying to unify distinct cultures under one governing apparatus or try to centralize economic activity through central banking.

For too long, Latin America has remained in the economic doldrums. No amount of allegations hurled at the United States can change the fact that this mediocrity is the fault of the very nations of this region. Fortunately, there is hope on the horizon. The Pacific Alliance represents a positive alternative to the failing Mercosur model and other populist schemes. If Latin America wants to break free from the chains of mediocrity and stagnation, it must follow the free-market road.

Let’s not waste this once in a lifetime opportunity. It’s time to leave populism and protectionism where they belong — the dustbin of history.

Edited by Laurie Blair.