Canada is now an associate member of the pacific alliance
In June 2017, the Pacific Alliance, faced with an unwieldy and growing number of observer countries, invited four observer states – Canada, Australia, New Zealand and Singapore – to become associate members. These four associate members form a new category between the full members and the more than 50 observer countries. A requirement of being an associate member is the negotiation of a comprehensive free trade agreement with the bloc. In October 2017, the first round of negotiations between Canada and the Pacific Alliance were held in Cali, Colombia.
A trade deal with the bloc will bring benefits beyond our bilateral deals
Canada already has individual free trade agreements with all four Pacific Alliance countries.But, so do our main competitors in the region – we compete with Spain in banking, Australia in mining and mining equipment, and the U.S. in everything. Signing a trade agreement with the bloc as a whole will give Canadian companies advantages over their competitors beyond simple tariff reduction.It will give them access to special arrangements for customs, labour mobility, digital trade and help deal with other frictions to trade.
In addition, two of the four Alliance members already have trade agreements with China (Peruand Chile). Joining the Alliance may give Canadian companies advantages in trading with China and learning from their experience in negotiating, implementing and managing agreements with China may be beneficial.
A trade deal is expected to build on both our existing bilateral deals and the strategic partnership Canada signed with the Pacific Alliance in June 2016.The partnership identifies six areas for increasing-operation: trade facilitation and promotion; education and training; small and medium-sized enterprises; science, technology and innovation; and, responsible natural resource development and the environment. Canada was the first, and remains the only, Alliance observer country to sign this type of partnership with the Alliance.
The Pacific Alliance
The Pacific Alliance consists of Chile, Colombia, Mexico and Peru. It formed in 2011 in an effort to
seamlessly link the members’ economies to better trade with each other and with Asia. The goal is to make the entire group more competitive on the global stage and specifically to trade with Asia.The Alliance grew out of concern among Latin-American members of the Asia-Pacific EconomicCooperation (APEC) group about falling behind the Asian members of the forum. The Alliance countries all have trade agreements with each other, and a requirement to fully join the bloc is to have trade agreements with all its members
The Alliance is a trade integration bloc where members seek to go beyond what can be achieved through trade agreements by co-operation in a variety of areas, such as integrating regulation (including financial integration) and by addressing next generation issues such as the digital economy. In many ways, the Alliance resembles the New West Partnership integration initiative between British Columbia, Alberta, Saskatchewan, and Manitoba. This western Canadian initiative is focused on making the western
Canadian economy more competitive on global trade, specifically in terms of increasing trade with Asia.If the existing Pacific Alliance was a single country, it would be the world’s 8th largest economy – just ahead of Canada. Its members account for almost40 percent of Latin America’s gross domestic product (GDP). Combined, the four countries have a GDP of nearly US$2 trillion, with Mexico making up about half. The Alliance countries contain more than one-third of Latin America’s population.
The Alliance countries have created a regional stock market indexed as MILA-SP40, eliminate visas for travel for their citizens, and are exploring creating a common visa for Alliance citizens. The trade integration bloc is working on one-stop-shop initiatives for foreigners looking to do business in the alliance and implementing flexible rules-of-origin to incentivize business opportunities and regional value chains. These initiatives make it easier for Canadian businesses to trade with and invest in alliance countries, essentially giving us “four for the price of one.”
Canada trades more with the Pacific alliance than other trade blocs with which we are considering trade deals
Canada has strong trade links with the PacificAlliance; more than 75 percent of our two-way merchandise trade with Latin America is with Alliance countries. Securing a trade deal with the bloc would strengthen these ties. While all Canadian trade numbers outside of trade with the U.S. are small, Figure 16illustrates Canada’s two-way trade in goods significantly greater with the Pacific Alliance than with other trade blocs Canada is considering negotiating trade deals with – Association of Southeast Asian Nations (ASEAN)* and Mercosur.
It gives an idea of Canada’s trade in services.Canada conducts nearly as much two-way trade in services with the Pacific Alliance as it does withChina and ASEAN. Canada’s service trade with the Pacific Alliance is more than double its service trade with Mercosur.
Trade with the Pacific Alliance is important for western Canada
As with Canada as a whole, the Pacific Alliance is an important trading partner for western Canada when compared to other trade blocs such as ASEAN and Mercosur. Both the Pacific Alliance countries and western Canada are serious about trade in general and trade with Asia in particular. Both also share a desire to move away from over-dependence on trade with the U.S., making increased trade with each other appealing.
The top three product categories exported to thePacific Alliance from western Canada are wheat and rapeseed, swine and bovine cuts and machinery.
The Alliance also presents an opportunity for trade in services for the western provinces. For example, greater exports of Alberta’s oil and gas technologies and expertise to Colombia, considered one of the best South American economies for oil firm investment. Other service opportunities include establishing regional supply chains to trade with Asia and for natural resource development.
The Pacific alliance shares Canada’s democratic and economic values
The Pacific Alliance is an attractive market for Canada because its member countries are mature and stable democracies, pro-trade, and have sound macro-economic fundamentals. All rank in the top third of the World Bank’s Ease of Doing BusinessIndex.8Chile and Mexico are members of the OECD and Colombia is in discussions to join. While other trade blocs such as the European Union (EU), Mercosur and even NAFTA have faltered or gone backwards, the Pacific Alliance has progressed because of its members’ pragmatic focus on competitiveness issues over politics.
Negotiating a trade deal with the Pacific alliance does not detract from other trade talks
Negotiating a trade deal with the Pacific Alliance should not take away resources from other ongoing trade negotiations. Since Canada already has individual trade agreements with each PacificAlliance member – the 20 year-agreement withChile was updated earlier this year – much of the hard work has already been done. Canada also recently worked with the Pacific Alliance on our strategic partnership agreement.
The NAFTA renegotiation is well underway and will continue into 2018. While NAFTA is taking a lot of time and attention from trade officials, Canada should be able to work on more than one agreement at the same time.
One of the objectives of the Pacific Alliance is the free movement of people between the member countries, along with capital and trade in goods, and services.
Despite the withdrawal of the U.S. from the TransPacificPartnership (TPP) agreement, the remaining11 countries are moving forward on implementing a TPP11 agreement.9While the TPP11 is a step towards a trade integration group, it is mostly about making it easier for the members of the group to trade more efficiently with each other. The PacificAlliance is different – it is truly a trade integration group, focused on making the unit as a whole more competitive and effective in trading with the rest of the world. By joining TPP11, Canada will gain better access to multiple Asian markets, including Japan. By signing a trade deal with the Alliance, which requires being an associate member, Canada will be able to benefit from some of the integration advantages of the bloc.
Of the other trade deals Canada is considering– with China and the trade blocs of the PacificAlliance, ASEAN, and Mercosur – a deal with the Alliance could be concluded in the shortest time frame, because Canada is now an associate member which requires negotiating a trade deal.Any future trade agreement between Canada andChina will take at least a decade to negotiate and implement. Exploratory discussions on a trade deal with ASEAN only started in September 2017. The federal government is still consulting with the public on whether to negotiate a trade deal with Mercosur.
Movement of people could be a stumbling block
One of the objectives of the Pacific Alliance is the free movement of people between the member countries, along with capital and trade in goods, services. Members have eliminated visa requirements for each others’ citizens, but have not yet tackled labour mobility issues such setting a universal standard for accepting professional credentials.
It is unknown if the Pacific Alliance will push for the same free movement of people in trade deals with its associate members. Associate members will get a certain amount of co-operation with full members and more of a seat at the table than observer countries have. How much of the bloc’s integration measures an associate member can take advantage of may depend on how much the associate member agrees to implement itself. For instance, Canada will not accept visa-free travel with all Alliance countries, which could limit our participation in the bloc.
Labour mobility is addressed in the bilateral trade agreements Canada has with each individual PacificAlliance country. If the agreement with the bloc rolls over these rules, it should not be an issue. NAFTA covers Canada-Mexico relations, and Canada’slabour mobility provisions with Chile, Peru and Colombia are very similar to those in NAFTA, with a few additions and exceptions.
TIC_PacificAlliance_Backgrounder_15NOV2017As Senior Policy Analyst, Naomi Christensen assists in all areas of research at the Foundation to provide analysis and recommendations for public policies that will impact western Canada. Naomi is recognized as one of Canada’s leading experts on the Canada-U.S. softwood lumber dispute. She has also worked extensively on trade infrastructure and electricity policy. Naomi joined the Foundation in May 2014.
As Director of the Trade & Investment Centre, Carlo Dade develops and leads research to promote growth and profitability in western Canada’s export economy. Carlo has a long history in international public policy most recently as Senior Fellow in the University of Ottawa’s School of International Development and Senior Associate at the Center for Strategic and International Studies in Washington, D.C. He is also a member of the Mexican Council on Foreign Relations (COMEXI).
© Naomi Christensen and Carlo Dade
The report was originally posted here.