Pacific Alliance: progress and challenges for the productive sectors

On 10 March, the 12th Meeting of Finance Ministers of the Pacific Alliance was held in Santiago de Chile. Taking part in the meeting were the Finance Ministers of Chile, Colombia, Mexico and Peru. The event was organized by the Chilean Minister Rodrigo Valdés, as Chile currently holds the Pro Tempore presidency of the Alliance.

During the course of the event, the ministers discussed the state of the economies of the member countries of the Pacific Alliance and debated the challenges for commercial and financial integration in the present international climate. Even though Colombia is adjusting its legislation and commitments to be able to join the OECD, to achieve the level of competition required by the Alliance, the National Government must make additional legal and regulatory adjustments.

An example of these are the provisions included in the Tax Reform that eliminate taxes on investments by pension funds from Chile, Mexico and Peru in Colombia as a result of which greater investment is expected, creating more jobs. The Colombian government’s goals also include the creation of financial products with a passport that will allow them to be distributed across the different member countries of the Alliance without restrictions. Financial positioning in Latin America is one of the pillars the country is seeking to strengthen together with the commitments to competition and financial security demanded by the OECD.

Another of the major issues addressed during the meeting of ministers was the position of Mexico with regard to Donald Trump’s determination to renegotiate the North American Free Trade Agreement, with the countries that make up the Pacific Alliance declaring their support for Mexico given the challenges it faces in the international context, which are shared by every country in Latin America. In addition, the ministers discussed some of the effects these unilateral decisions might have upon the economies and trade of other states in Latin America.

The ministers further discussed the challenges of global economic integration and spoke about the external situation currently facing the four countries of the Alliance, recognizing the global risks associated with threats of protectionism and reaffirming their commitment to commercial and financial integration.

Commitments on infrastructure and services

In the realm of infrastructure, feasibility studies for a Pacific Alliance Infrastructure Fund were analyzed and it was agreed that an investor fair would be held to promote financing opportunities for infrastructure in the region. It is important to note that for countries such as Chile and Colombia the infrastructure sector continues to be one of the biggest factors that determine the countries’ level of investment and sustainability.

In other areas, the finance ministers agreed to identify tax, customs and financial barriers to the export of services based on a study by the Inter-American Development Bank (IBD) in order to encourage specific actions to support that sector. It was also agreed to model a catastrophe bond that would facilitate the administration of risks at a regional level and explore the elimination of non-tariff barriers, the promotion of capital flow and the facilitation of foreign investment in the region.

The Alliance looks to the Asia Pacific Region

Finally, a key theme in the discussion was related to the Pacific Asia region and the need for the Alliance to act jointly and speak with a single voice to improve and expand its free trade treaties with countries and trade blocks in the region. On 15 March, the Foreign Ministers of the member states of the Alliance agreed to align information derived from the meeting of the finance ministers and to propose the creation of the designation ‘Associate State of the Alliance’ to promote the beginning of trade negotiations with countries from the Asia Pacific region, as long as said negotiations lead to high standards of quality in terms of trade disciplines and are concluded in the short term.

The commitments assumed by the Alliance Ministers of Foreign Relations and Commerce included the need to implement policies in favour of commercial expansion; the integration of markets, cooperation, support and strengthening of the multilateral trade system and the commitments assumed by each country as part of that framework.

In conclusion, the meetings of the Ministers of Finance and the Ministers of Foreign Relations seek to promote competitiveness and the development of Free Trade among member countries and even extend it into the Asia Pacific region. The challenge is to establish whether the decisions taken by governments for internal implementation have the expected results or whether they in fact restrict industrial activities and limit the development of the economy. Soon, we will begin to see the results of the Tax Reform in Colombia and will closely follow other decisions taken by the National Government such as the tariff reforms, the modification of free trade areas and new agreements such as the dual taxation treaty with the United Kingdom, among others, that may affect or benefit industries in the country.