Nearshore Americas

Pacific Alliance Looks to Global Future Following Negotiations with Singapore

The recent conclusion of negotiations between the Pacific Alliance and Singapore to establish a comprehensive free trade agreement will see the Southeast Asian microstate become the first official associate member of the four-member economic association, in what could prove to be the first major step towards the Alliance’s long-anticipated global expansion.

This promises to make starting a business in Chile, Colombia, Mexico, or Peru — the Alliance’s four founding members — all the more enticing to foreign investors, as resident companies in those four countries enjoy preferential access to a growing number of markets.

The Pacific Alliance (known as the AP for its initials in Spanish) was originally established in April 2011 during a forum held in Lima, the Peruvian capital. Six years later, Singapore became one of four candidate associate members, alongside Australia, Canada, and New Zealand.

Individual comprehensive free trade agreement negotiations are ongoing between the AP and Australia, Canada, and New Zealand, while the conclusion of talks with Singapore will see the Pacific Alliance-Singapore Free Trade Agreement (PASFTA) come into force in December.

Negotiations with these four countries highlight the organization’s ambitions to forge closer ties with major economies around the globe, and especially in the Asia-Pacific region, while a number of other Latin American nations have expressed a desire to join the association, including Honduras, Costa Rica, Ecuador, and Panama.

All of those countries feature among the AP’s more than 60 observer states, with the latter three being advanced in their moves towards gaining associate member status.

What Does PASFTA Mean for its Signatories?

The PASFTA brings together one of the world’s most prosperous countries with a bloc of nations that collectively form the 8th largest economy worldwide.

Singapore — the world’s 20th-smallest state by area but third-most densely populated — is famed for being a major financial hub with a large and highly developed economy. In 2019, the country registered a gross domestic product of US$374.4 billion, according to World Bank statistics. 

With a population of just 5.7 million people, that year the Southeast Asian nation had a gross national income of US$58,390 per capita

With a population of just 5.7 million people, that year the Southeast Asian nation had a gross national income of US$58,390 per capita — placing it among the most prosperous of high-income countries globally. 

Singapore is also one of the most business-friendly nations in the world, ranking as the second-easiest place to do business in the World Bank’s 2020 Doing Business Report, behind only New Zealand. Thanks to its development and pro-business outlook, Singapore is also a hub of innovation and technological development. 

In 2019, Singapore’s trade in goods with the AP totalled US$6.1 billion — accounting for 33.2% of the country’s total trade with Latin America, according to Singapore’s Ministry of Trade and Industry.

With the signing of PASFTA, that engagement looks set to deepen significantly, in what could prove a boon to the economies of the AP’s members.

The AP boasts a collective population of 230 million, with a combined GDP of more than US$1.8 trillion — approximately 37% of the entire Latin America and Caribbean region — and annual exports in excess of US$627 billion. 

All four countries are major producers of agricultural goods and sit on rich deposits of extractable materials, including metals, ores, gems, and hydrocarbons. 

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Notably, all four members are some of the highest ranking countries from Latin America and the Caribbean in both the 2020 Doing Business Report, and the World Competitiveness Center Rankings, produced by the independent Institute for Management Development (IMD)

The four countries are also major tourist destinations, with approximately 56 million international visitors between them annually, as well as popular markets for international capital—accounting for an estimated 38% of the region’s foreign direct investment (FDI).

It is in this context that the PASFTA agreement will see the signatories collaborate on matters including the digital economy and technology, energy, food trade, port logistics, and infrastructure, promising to offer significant benefits to each. 

The Future Growth of the Pacific Alliance

According to a “Strategic Vision” document, which was published in 2018, the organization intends to have ten associate members by 2030.

As that document states, the expansion of the Alliance is intended to form “a network of integration between Latin America and the world, based on high standards that boost trade and investment, while taking advantage of economies of scale.”

Other than Singapore, it is unclear exactly which countries will form those ten associate members, the three current candidate associate members can be assumed to be among them, given that negotiations are already ongoing. 

Meanwhile, as well as the aforementioned Latin American nations that have expressed an interest in deepening their association with the AP, South Korea has been widely slated as a potential associate member of the future.

Should Australia, Canada, and South Korea join as associate members, the AP would forge closer ties with three of the 15 largest economies in the world–tapping into a combined GDP of US$4.6 trillion

Should Australia, Canada, and South Korea join as associate members, the AP would forge closer ties with three of the 15 largest economies in the world–tapping into a combined GDP of US$4.6 trillion. With New Zealand thrown into the mix, it would also be forging ties with four more of the most prosperous economies in the world.  

This could have a transformative effect on the economies of the AP members, offering access to an outstanding pool of knowledge, expertise, and innovation, while opening up markets for primary and secondary goods produced by each.

Moreover, given the tensions we are seeing in the Asia-Pacific region today, developing stronger ties between the AP and so many major economies based in the region that are wary of Chinese power could be a game changer for the future.

China has made significant inroads into Latin America in recent years, investing heavily, dishing out loans, and building up its influence in major institutions, as well as aggressive attempts to break ties between Latin American countries and Taiwan.

With China becoming increasingly assertive in the Asia-Pacific region, Australia emerging as a major protagonist, and all of the other possible associate members having critical stakes in the region, the evolution of the Pacific Alliance into an intercontinental platform for promoting economic development and free trade could have major implications for the future of international relations.

*Alicia Minerva contributed to this article

Craig Dempsey

Craig is the Managing Director and Co-Founder of the Biz Latin Hub Group. Craig holds a degree in Mechanical Engineering, with honours, a Master’s Degree in Project Management and various other diplomas covering logistics, personal management and government administration. Craig is also a military veteran, having served as an Australian army officer on numerous overseas operations and is also a former mining executive with experience in various jurisdictions, including, Canada, Australia, Peru and Colombia. You can contact Craig here.

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