The Pacific Alliance and its economic impact on regional trade and investment: Evaluation and perspectives

Abstract

The entry into force of the Additional Protocol of the Framework Agreement of the Pacific Alliance in May 2016 marked an important step towards the regional integration efforts of its four members: Chile, Colombia, Mexico and Peru. In addition to promoting trade and investment linkages among its members, a core objective of the Pacific Alliance —and what distinguishes it from other regional integration efforts in Latin America— is to serve as a platform for economic and commercial integration between Latin America and Asia-Pacific. It is, therefore, of particular interest to evaluate current economic developments taking part in modern Latin America and their impact upon these integration efforts. The data of bilateral flows of trade in goods at the product and sector level, together with the study of trade in services as well as foreign direct investment, reflect the strong links within the Pacific Alliance. It also reveals the potential to further increase its members’ participation in regional and global value chains. The Additional Protocol will serve not only to immediately eliminate tariffs for nearly 95% of intraregional imports, but also to foster economic integration through cumulation of origin and trade facilitation. The Pacific Alliance faces several challenges in the medium-term. First, it must successfully incorporate Costa Rica as a full member, the first accession since the Pacific Alliance was formed. Further, it must clearly define how to fulfill one of its driving forces: to serve as a bridge between Asian and Latin American countries on both sides of the Pacific.