A new free trade agreement in Latin America

It’s called the Pacific Alliance and its members include Mexico, Colombia, Peru and Chile. Apparently Costa Rica is set to join soon and Panama not that long afterward.  The group has agreed to remove all tariffs on member trade.  An article on the new agreement argues that this  will “encourage free trade between Latin America and the rest of the world.”  

I am all in favor of more free trade, but regional trade alliances are unlikely to foster free trade in the rest of the world.  As Paul Blustein explains wonderfully in Misadventures of the Most Favored Nations, bilateral and regional agreements give member countries less of a stake in the multilateral trading system of the WTO.  Given the trade diversion they may benefit from in the regional groupings, it’s possible they will be less likely, ceteris paribus, to want to move forward with the Doha Round.

I’m not saying that’s a bad thing, only that the idea that this trade agreement will foster free trade in the rest of the world seems doubtful.  Maybe they meant that it will inspire other countries to create their own free trade agreements?

The new pact explains that duties will drop to zero on 92% of the goods and services traded within the group. The remaining tariffs, mostly on agricultural goods, will be slowly phased out until 2030.  Interestingly, the members have “also declared their commitment to implement automatic tax and financial information exchange within the next six months, and it has been agreed that Mexico is to be accepted, probably by the end of this year, as a member of the Latin American Integrated Market, which currently consists of the stock markets of Colombia, Peru and Chile.”

Not everyone is thrilled with the news though.  Evo Morales has claimed that the FTA is “a geopolitical scheme by the United States to oppose the progressive, left-wing governments of Brazil, Argentina, Uruguay, Bolivia, Venezuela and Ecuador.”

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