This is the third post in a series of three that examines the Trans-Pacific Partnership and the Pacific Alliance, and what they mean for each other and the growing Pacific region economy.

As discussed in the last two articles, the Trans-Pacific Partnership (TPP) and the Pacific Alliance (PA) are two trade initiatives that herald the Pacific region’s growing economic strength. The 11 TPP members far outweigh the 4 PA countries in terms of economic size – the TPP would account for about US$27 trillion and the PA a respectable US$1.3 trillion. However, both are pioneering enterprises. The TPP is unique in its geographic reach and ambitious agenda. The PA is distinctive because of its potential to offer a new doorway to Latin America from Asia.

Both of these agreements are good news for Pacific commerce. Besides expanding market access for members, the TPP is important because, if successful, it will establish rules between members on the most complex and polemic issues in international trade; specifically: intellectual property rights, rules of origin, technical barriers to trade, environment, labor, pharmaceuticals, foreign investment, competition, state-owned enterprises, and government procurement.

The PA, on the other hand, has focused on a few specific areas rather than a large, comprehensive regimen. The PA has technical working groups that meet on a range of topics including rules of origin, tariff reduction, technical barriers, sanitary and phytosanitary measures, migration, services and investment, government procurement, regulatory improvement, and intellectual property rights. The most progress, however has been made in 3 areas: migratory, where visa requirements have been waved between the countries; services and investment, where an integrated stock market has made the flow of capital easier; and tariff reduction, with 90% of goods expected to be tariff free between the members by the middle of this year.

Differences also lie in the geographic and strategic roles of these two agreements. The TPP’s members come from North America, South America, Oceania, and East Asia. Its members label it a “21st Century Agreement” because of their goal to establish a model framework for other comprehensive trade agreements around the world. The PA, however doesn’t stretch as far out geographically. All of its members are in the Americas. It only has 3 observer countries from the other side of the Pacific – Australia, New Zealand, and Japan. These differences make it more sensible to view the TPP as a bridge that connects the Pacific, while the PA is a doorway for the Pacific into Latin America.

Because they aren’t necessarily aiming for the same objectives, the TPP and the PA are two compatible trade deals that together can help strengthen trade in the Pacific region. Because 3 (Peru, Chile, and Mexico) of the 4 PA countries are also members of the TPP, it’s likely that PA members will focus more of their scarce negotiating resources on achieving favorable results under the TPP as a bloc, where the rewards are greater. Colombia has not yet signed up for the TPP, but has expressed interest. Whatever the 3 PA countries cannot achieve under the TPP would ideally be left for further negotiation between themselves under a more comprehensive Alliance agreement.

One major question for the TPP is the accession of major Asian players like China, Korea, and Japan. Japan has already formally requested to join. Because of its large economy and sticky issues revolving around market access for agriculture and automobiles, its accession would likely mean putting off a deal until 2014 at the earliest. Korea holds or is currently negotiating FTAs with most of the TPP countries, so its accession wouldn’t be too disruptive. China, however, is a bigger question. Political considerations mean that it is likely to not join the TPP anytime soon, but because of its role as East Asia’s largest economy, its absence will hinder the success of the TPP in creating a true free-trade zone in the Pacific.

The Trans-Pacific Partnership and the Pacific Alliance are hopeful signs for a growing Pacific region. Their compatibility rests on their differing scopes and visions, but their success will rest on their mutual enthusiasm for greater commercial links across the Pacific. The true impact of these agreements will only be felt years down the road, but even the progress thus far is a good sign for the region.

This is the second post in a series of three that examines the Trans-Pacific Partnership and the Pacific Alliance, and what they mean for each other and the growing Pacific region economy.

The Trans-Pacific Partnership (TPP) is unique because of its wide geographic reach, which includes members from North and South America, East Asia, and the Oceania; and its deep, comprehensive economic goals. The Pacific Alliance (PA), however, does not include such broad membership – it counts just 4 Latin American partners – but it does share the TPP’s ambitious goals for the Pacific region.

The Alliance comprises Colombia, Chile, Mexico, and Peru and was set in motion in April 2011 when these countries called for the creation of a trade bloc in the Lima Declaration. In June 2012, the Alliance was formalized at the signing of a “Framework Agreement.” The agreement’s stated objectives are 3-fold: (1) deepen economic integration to allow for the free movement of goods, services, capital, and people; (2) promote economic growth, competitiveness, and development; and (3) act as a platform to project global political and economic power, especially toward the Asian Pacific region.

The PA’s members have enthusiastically worked toward their objectives, holding 6 presidential summits and 25 ministerial and technical working group meetings over the past 2 years. This flurry of effort has resulted in an accord to eliminate visa requirements for citizens traveling between the countries; technological, scientific, and student exchanges; and a target date of March 31, 2013 for the elimination of tariffs on 90% of goods traded between the members.

If successful, the Alliance will strengthen already robust commercial ties between the countries. FTAs are in force between all the members – in fact a FTA with each member is a prerequisite for joining the PA. Further, Chile, Colombia, and Peru have used an integrated stock market, the Integrated Latin American Market (MILA), since May 2011. Negotiations for Mexico to join the MILA are progressing within the PA framework.

The progress made to date and the strong economic relationships between members point to a bright prospects for the Alliance. The Alliance represents US$1.3 trillion in GDP – almost 25% of Latin America and the Caribbean’s combined GDP – and 55% of Latin American exports. It also provides a functional free-market alternative to the debilitated and oft-protectionist Mercosur coalition comprised of Argentina, Brazil, Paraguay, Uruguay, Venezuela.

For all its bright prospects, the PA does suffer from some weaknesses. First, because FTAs already exist between all the members, bringing tariffs to zero on 90% of goods will not have a large effect. Instead, the Alliance will have to hammer away at greater challenges like customs and regulatory harmonization to boost trade. Second, although its intended focus is the Asian Pacific, it only counts 3 observer states from that region: Australia, New Zealand, and Japan. It will have to work further to engage other commercial partners in the Asia Pacific.

Nevertheless, the group signals the increasing America-Asia link coming from the Pacific. Although Brazil remains Asia’s largest trade partner in Latin America, trade between the PA countries and Asia amounted to 49% of all Latin American/Caribbean trade with Asia in 2011, according to the Inter-American Development Bank.

Even as the economic gains from the Alliance build, the political ones may be just as important. Interest in the PA has spread from North and Central America to Spain and even Turkey as the Alliance has welcomed Canada, Costa Rica, Panama, Guatemala, and Spain as observer states, and opened an office in Istanbul. It has lured Mercosur member Uruguay in as an observer, and was ready to receive the chastised Paraguay after it was suspended from that customs union. But as its profile increases, PA leaders insist that the Alliance is open to all and does not see any other trade bloc or nation as a competitor.

The Pacific Alliance, like the Trans-Pacific Partnership, is an indication of the Pacific region’s growing economic clout. Rather than looking inward or toward the United States, Latin America is seeing the importance of reaching out to Asia. In both the PA and the TPP, nations are challenging geography and tradition by building bridges over the world’s greatest divide. But how exactly will these two agreements impact one another, and how will they affect the region as a whole? We’ll delve deeper into these questions in the final installment.

This is the first post in a series of three that examine the Trans-Pacific Partnership and the Pacific Alliance, and what they mean for each other and the growing Pacific region economy.

The first decade of the 21st century was dominated by wars in the Middle East and global financial crises. The second decade, however, promises to be shaped by the growing economic might emanating from the Pacific region. Two separate initiatives seek to capitalize on and strengthen this new dynamic: the Trans-Pacific Partnership (TPP) and the Pacific Alliance (PA). Both are ambitious plans that endeavor to boost economic development and foster political cooperation through more robust trade and investment among their respective members. But are these two agreements compatible? And what will their success mean for the region?

The Trans-Pacific Partnership started as a 2006 agreement between Brunei, Chile, New Zealand, and Singapore that was then called the Trans-Pacific Strategic Economic Partnership. In 2008, Australia, Peru, the United States, and Vietnam joined the negotiations, with Malaysia following in 2010, and Canada and Mexico climbing onboard in 2012. Recently, Thailand and Japan have announced plans to join the negotiations. Collectively, the 11 current TPP countries account for about 40% of global GDP and, according to Brooking’s Josh Meltzer, 8.6% of global trade.

The TPP’s economic heft matches its ambitious agenda. The members envisage a comprehensive agreement that would remove tariff and non-tariff barriers to trade in all areas of goods and services trade, including perennial trouble spots like agriculture and textiles. They also hope to strike a deal on rules governing foreign direct investment, intellectual property rights, government procurement, state-owned enterprises (SOEs), and other multilateral economic concerns. Such an agreement would be significantly more advanced than any economic accord in which TPP members currently participate.

This is a heavy undertaking, but 16 negotiating rounds have already been concluded and TPP leaders have set the October 2013 ASEAN summit as the target for completing talks. Because TPP members already enjoy extensive FTA coverage with each other, US$1.5 trillion of US$1.9 trillion of trade is covered by existing FTAs, market access issues will not be insurmountable. This does not mean, however, that certain areas don’t present tough challenges – New Zealand dairy access to the U.S., Singaporean and Vietnamese SOEs, textile rules of origin, FDI in Mexico’s energy sector, just to name a few. Nevertheless, the progress made to date is encouraging and it is likely that negotiators will be successful in striking a comprehensive economic bargain that integrates these Pacific region economies.

The TPP is touted as a “21st-Century agreement,” because members want it to be a model for future economic pacts that go beyond trade and investment. The rules that TPP negotiators agree on will impact economic decisions in each one of the member countries. New, higher standards on intellectual property, SOEs, regulatory harmonization, competition, and various commercial areas like energy and telecommunications will shape the future of participating economies and offer a global model for the next generation of FTAs. If successful, the TPP will herald a new stage in global economic relations.

The idea of striking such a comprehensive agreement among such distinct and geographically divided countries is only now feasible thanks to the ascent of emerging economies in East Asia and Latin America. A broadening in the balance of economic power from Europe and North America toward the east and south is evident. In fact, the TPP is not the only effort at integrating the region. On the next post, we’ll take a look at another regional initiative – the South American-led Pacific Alliance. We’ll review it’s history, goals, and prospects for success. Then, in our third installment, we’ll examine how the Trans-Pacific Partnership and the Pacific Alliance will impact one another, and what they mean for the region as a whole.

 

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