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Talking Trade blog

More than a decade of the Pacific alliance: Implications for Singapore and the region


Published 01 March 2022

On Jan 26, 2022 Singapore signed a Free Trade Agreement (FTA) with the Pacific Alliance (PA), a regional economic bloc made up of Chile, Colombia, Mexico and Peru representing more than USD 2 trillion in GDP. [1]

The Pacific Alliance Singapore FTA (PASFTA), has been touted as a “landmark moment” for Singapore’s partnership with Latin America with the potential to strengthen investment and market access opportunities for Singapore and PA countries.[2]

Despite the agreement’s potential, there remain economic, institutional and political factors that could affect the PA’s potential impact on Singapore and the region’s trade and investment opportunities.

Since its inception in 2011, the PA has garnered a surprising amount of attention from around the world: 61 countries have become observer states, multilateral organisations including ASEAN, the OECD and the EU have established partnerships with the bloc, and five countries, including Singapore, are negotiating FTAs with the PA members in order to obtain Associate Member status.[3]

The signing of the PASFTA and the amount of interest the PA has garnered shows the effectiveness of efforts by its members to establish the PA as a credible and ambitious instrument for economic integration in the Asia-Pacific.

One has to only look at the PA’s accomplishments over the last decade to understand why potential members like Singapore find the PA such a promising trade partner.   

In 2016, PA members signed the Protocol of the Framework Agreement of the Pacific Alliance. The protocol eliminated 92% of tariffs and included 19 Chapters featuring modern disciplines related to professional, financial and maritime services, telecommunications and e-commerce.

In addition, under the work of more than 30 technical groups, the PA has completed more than 180 export promotion activities, facilitated the exchange of more than 91,000 e-phyto certificates through their National Single Windows, eliminated tourist visa requirements between its members, reached agreements for regulatory harmonisation in the cosmetics, food supplements, household cleaning and medical devices sectors, and developed a strategy for a Regional Digital Market.

Despite the PA’s remarkable progress to date, there are key political, institutional and economic obstacles that may be detrimental to its continuity, relevance and eventual impact in the region.

First, large obstacles remain to deeper economic integration between members. Intra-PA trade has remained between 3% and 4% over the past decade, and has actually declined since the implementation of the Protocol in 2016.

Low intra-alliance trade cannot be attributed to the presence of tariff barriers, which have been mostly eliminated under the PA and pre-existing FTAs between the members. A more plausible explanation is that the PA members are not natural trade partners. Chile, Colombia and Peru share similar commodity driven export baskets while Mexico, the largest and most diversified member of the group, is better integrated with North American supply chains and geographically remote from its South American partners.

Even if PA countries were able to develop better complementarity between their export baskets, they would still have to overcome challenging geographical conditions and transportation infrastructure deficiencies that have remained large obstacles to trade in Latin America.

All these challenges will continue to make it incredibly difficult to develop internal production chains and seriously advance the economic integration across PA members

The PA’s potential may instead lie on its ability to build stronger linkages with external and more complementary partners. For instance, the PA could give countries like Colombia and potential PA members like Costa Rica and Ecuador, which only have a few or no FTAs with Asia, a platform to engage more meaningfully with the region.

Unfortunately, under the PA’s current institutional structure it remains unclear whether members can support the continued and sustained efforts from members.

Under the current model, leaders largely direct the Alliance from the top while the different technical groups focus on specific work areas. The PA’s main coordinating mechanism follows a pro-tempore presidency model, where a PA member is responsible for the coordination all of the PA’s activities in a given year.[4]

As the agenda for the PA expands, it remains unclear whether the pro-tempore model alone, without a permanent secretariat, will be sufficient to administer a larger amount of tasks. For instance, the negotiations with Associate States requires members to sign separate FTA agreements with multiple countries. The pro-tempore leadership, nor a large amount of working groups, can guarantee that these agreements are carried out effectively; more so now with the expansion of overlapping regional agreements like the CPTPP, a deeper and more comprehensive agreement where Singapore, Chile, Peru and Mexico are already members.[5]

The absence of a permanent body to manage the details and implementation of hundreds of initiatives also makes the PA more vulnerable to potential ideological changes in its heads of state. Given the scepticism shown towards FTAs by recently elected leaders in Peru and Chile and the leading presidential candidate in Colombia, institutional continuity in the PA could be significantly disrupted.

The PA has done a remarkable job in establishing itself as a platform with the potential to increase trade an investment between Latin American and the Asia-Pacific region. However, structural obstacles to intra-alliance trade, overlapping regional economic integration efforts and risks to institutional continuity will shape the size of the PA’s impact and influence in the region.

***

[1] Founded in 2011, the PA was established as an ambitious economic integration initiative meant to enable the free flows of goods, services and people between members and provide platform of economic and commercial integration with the Asia-Pacific.
[2] The PA is the first Free Trade Agreement signed between Singapore and Colombia. Singapore has existing agreements with the other PA members: Mexico (CPTPP), Peru (CPTPP and Peru-Singapore FTA) and Chile (CPTPP). The CPTPP is yet to be ratified by Chile.
[3] The PA is currently concluding FTA negotiations with Canada, Australia and New-Zealand. According to the PA’s latest Presidential Decree it will begin negotiations with South Korea in 2022.
[4] In 2021 Colombia managed pro-tempore presidency. In 2022 the pro-tempore presidency will be managed by Mexico.
[5] Canada, New Zealand and Australia, the PA’s other Associate State Candidates are also CPTPP members. Earlier this year Ecuador made a formal application to join the CPTPP.

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Sebastian is an international trade and development adviser with extensive hand-on experience working across business, government and academia in the design and implementation of trade strategies and policies.

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