It’s been a busy few months for the Pacific Alliance. First Panama signed a free-trade-agreement with Mexico to pave the way for the Central American country’s entrance into the dynamic free trade bloc. And now the Alliance has opened negotiations with the OECD, a move which should grant it more international clout.
On paper the Panama free trade deal doesn’t look very significant. Mexico’s trade with Panama currently stands at around $1.1billion per year, compared to its much higher $500billion-plus trade with the US. Yet the deal means that Panama, which already has similar agreements with Colombia, Peru and Chile, can now join the Pacific Alliance. It’s a statement for support for the trade bloc, which has grown quickly since being formed in May 2012. Panama is likely to be the second additional country to join, with Costa Rica’s application more advanced.
As a $40billion economy, Panama will be the Alliance’s smallest member, yet it has also been one of Latin America’s standout performers in recent years, with GDP growing by more than 8.5% last year. Moreover Panama’s open economic stance as a trading nation, ties in well with the ethos of the Pacific Alliance – which is partly what distinguishes the bloc from other regional groups such as Mercosur. The Alliance notched up another success early in the quarter when members agreed to cut tariffs on 92% of goods and services.
But despite the Alliance’s rapid progress there could be some clouds on the horizon. Critics have always claimed that the grouping was built on personal relationships between presidents that wouldn’t endure. The first test of this theory has come in Chile, where left-wing Michelle Bachelet has replaced right-wing predecessor Sebastian Pinera. Analysts say that Bachelet, who has a close personal relationship with Brazilian president Dilma Rouseff, wants to focus on building relations with Atlantic powers such as Brazil and Argentina. Bachelet’s first international visit as president are likely to be to those countries and her recent comments to the Economic Commission for Latin America and the Caribbean seem to suggest a change of tack. “In recent years, Chile has lost regional presence and an economic vision has excessively prevailed in the country’s relationships.” Given the rapid growth of the Alliance it’s only natural that it should experience some growing pains – but with important deals already signed it seems likely that its momentum will continue for some time yet.