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Regional analysis 20 Jul 2017

The Pacific Alliance, a success story in Latin American integration

The Pacific Alliance, made up of Chile, Colombia, Mexico and Peru, is a regional economic and comercial powerhouse.  This area grows more than the average in Latin America. BBVA Research expects GDP growth of 1.6% and 2.3% in 2017 and 2018, respectively.  “The Pacific Alliance is a success story in integration.  And not by chance.  It shares an ambition and a set of values behind this policy, on how prosperity should be reached,” said Jose Manuel González-Páramo, executive director of BBVA in Santander.

During the event entitle  ‘Fourth Meeting:  Multi-Latin enterprises and their impact on the development of Ibero-American integration,’ held at Universidad Menéndez Pelayo, in Santander, Spain, José Manuel González-Páramo went over some of the crucial aspects of the Pacific Alliance.  In his opinion, the key to the bloc’s future is to increase its competitiveness compared to other international markets.

José Manuel González-Páramo, head of BBVA’s global economic, regulatory and institutional relations area, recalled that economic and political commitment was the common starting point for the Alliance’s integration.  However, like other similar processes, its successful completion still faces some challenges.  Of these, José Manuel González-Páramo focused on trade integration.

From left to right: José Antonio García Belaúnde, Ambassador of Peru to Spain; José Manuel González-Páramo, BBVA Executive Director; Carlos López Blanco, Head of Public Affairs and Regulation at Telefónica; Carlos Malamud, Senior Analyst for Latin America at the Elcano Royal Institute; and Jaime Folguera, partner at Uría Menéndez.

Keys to promote trade

BBVA’s executive director analyzed, on the one hand, the advances that favor trade and, on the other, the pending challenges of the Pacific Alliance.

On the progress side, he highlighted the essential steps to promote intraregional trade, such as the elimination of tariffs for 92% of tariff headings and cumulation of origin for trade between the four countries, so that the content of another country of this region is considered as national.

However, intraregional trade is still very small, compared to trade with other countries outside the bloc, said José Manuel González-Páramo.  In fact, only 4% of the international trade of these four countries is directed within the Alliance. This is due to several factors, such as the different productive structures of the countries and the persistence of obstacles to intraregional trade, an issue that is pivotal.

José Manuel González-Páramo emphasized transport and logistics infrastructures, administrative simplification and the reduction of non-tariff barriers, which are key to trade promotion.

The executive director of BBVA also recalled two positive initiatives already underway: progress in the creation of a Pacific Alliance-wide debt fund (Pacific Alliance Infrastructure Investment Fund) and the harmonization of the regulatory framework for public-private partnerships.

The benefits of trade integration

Progress in trade integration would allow, in his opinion, generating greater opportunities for companies.  Thus, companies will be able to take advantage of the broader commercial links between the four countries and in turn favor their supplier companies, positively impacting a large number of SMEs.

Another positive effect would be improving competitiveness by integrating firms into production structures at the regional level, known as regional value chains, so that the four countries can project themselves more competitively towards other international markets.  The goal would be to make the companies of the four countries of the Alliance integrate into global production structures, also called global value chains.

Finally, José Manuel González-Páramo has pointed to the improvement of the Alliance’s institutions as a key element to promoting integration. To this end, he has recommended the creation of a permanent general secretariat to enhance the coordination of work between the summits held by the countries in the bloc.

José Manuel González-Páramo participated in the ‘The Pacific Alliance as an example of integration’ panel, alongside José Antonio García Belaúnde, ambassador of Peru in Spain;  Carlos López Blanco, Director of Public Affairs and Regulation of Telefónica;  Carlos Malamud, chief researcher for Latin America at Real Instituto Elcano; And Elena Nieto, chief economist for Latin America at Cemex; Moderated by Jaime Folguera, partner of Uría Menéndez.

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