Pacific Alliance Vs. NAFTA
1. Date of Creation
Pacific Alliance: The Pacific Alliance was founded the 28th of April of 2011.
NAFTA: NAFTA (North American Free Trade Agreement) was founded in 1980. But it came into force on January 1st, 1994.
2. Countries Involved
Pacific Alliance: Chile, Colombia, Mexico and Peru. In addition, there are 52 observer states: 14 from America; 2 from Africa; 8 from Asia; 2 from Oceania; 26 from Europe.
NAFTA: Canada, United States and Mexico.
3. Reason of Creation
Pacific Alliance: Geopolitically speaking, the Pacific Alliance brings together the four countries that surround the Pacific Ocean (excluding Panama and Costa Rica, which are associate members). Its main reason for creation was to “deepen trade and economic agreements and integration among members. “ (Barreto, 2015)
NAFTA: President Ronald Reagan proposed a North American common Market. Canadian prime minister at the time, Brian Mulroney agreed to begin negotiation for a free trade agreement between Canada and the U.S.
In 1992, NAFTA was signed by George H.W Bush, president of the United States, Salinas, Mexican president and Mulroney (Amadeo, 2018). The three countries ratified it in 1993.
The Treaty allows costs reduction in order to promote the exchange of goods and products between the countries involved.
4. Purpose
Pacific Alliance: The Pacific Alliance goal is to deepen cooperation among members with the explicit purpose of forging closer relations with the Asia-Pacific region.
According with the Colombian Chancellery, the Pacific Alliance has the following objectives:
Build, in a participatory and consensual manner, a deep integration area to gradually progress towards the free circulation of goods, services, capital and people.
Promote the diversification of exports, greater growth and economic development, as well as greater competitiveness of the economies of member countries, with a view to achieving greater well-being, overcoming socioeconomic inequality and promoting the social inclusion of its inhabitants.
Become a platform for political articulation, economic and commercial integration, and projection to the world, with emphasis on the Asia-Pacific region.
NAFTA: According to the Article 102 of the NAFTA agreement, the objectives of the treaty involve:
Eliminate barriers to trade in, and facilitate the cross-border movement of, goods and services between the territories of the Parties;
Promote conditions of fair competition in the free trade area;
Increase substantially investment opportunities in the territories of the Parties;
Provide adequate and effective protection and enforcement of intellectual property rights in each Party's territory;
Create effective procedures for the implementation and application of this Agreement, for its joint administration and for the resolution of disputes;
Establish a framework for further trilateral, regional and multilateral cooperation to expand and enhance the benefits of this Agreement.
5. Economic Impact
Pacific Alliance: Until today, the Pacific Alliance have had a deregulation of 92% of intraregional trade and reduction of the remaining 8% from 3 to 17 years from 2016.
the Pacific Alliance counts with 38% of the GDP of Latin America and the Caribbean. It also controls 50% of the total trade in the region and accounts for 45% of the total international investment of the subcontinent.
“The total trade of goods in the Pacific Alliance (imports plus exports) reached 1.1 billion dollars in 2014, representing almost 50% of total trade in Latin America and 3% of world trade.” (Aichele, 2015)
NAFTA: The major focus of its creation was the liberalization of trade in agriculture, textiles and automobile manufacturing (McBride, 2017).
James McBride and Mohammed Aly Sergie claim that:
“When negotiations began, the goal for all three countries was the integration of Mexico with the highly developed, high-wage economies of the United States and Canada. The hope was that freer trade would bring stronger and steadier economic growth to Mexico, providing new jobs and opportunities for its growing workforce and discouraging illegal migration from Mexico. For the United States and Canada, Mexico was seen both as a promising new market for exports and as a lower cost investment location that could enhance the competitiveness of U.S. and Canadian companies.”
Economists agree that NAFTA has brought benefits to the economy of the United States. “Regional trade increased sharply [PDF] over the treaty’s first two decades, from roughly $290 billion in 1993 to more than $1.1 trillion in 2016. Cross-border investment has also surged, with U.S. foreign direct investment (FDI) stock in Mexico increasing in that period from $15 billion to more than $100 billion.” (McBride & Sergei,2017).
However, the deal has also brought job losses and wage stagnation to the United States. This have been driven by low-wage competition, which has caused a trade deficit; companies exporting production to Mexico for lower costs.
6. Its Scope for the Future
Pacific Alliance: The alliance has the ambition of expanding its GDP by at least two percentage points over the expected growth rate, allowing the countries of the bloc to keep pace with their peers of the same level of high and high average incomes around the world.
It aspires to have an average annual growth of the GDP in the regions of 3.3% in the next 20 years; “2.9% for Colombia, 3.2% for Mexico, 3.3% for Chile and 4.3% for Peru.” (Alarcon, 2016)
NAFTA: According to Kimberly Amadeo, economic analyst, NAFTA has fulfilled all its goals, as it is now the “world’s largest free trade area in terms of gross domestic products” (2018).
Nonetheless, with the election of president Donald Trump, new actions are being proposed such as: renegotiate NAFTA to get a better deal that will improve U.S. workers; make Mexico eliminate its maquiladora program. If Mexico nor Canada agree, “[Trump] will withdraw from NAFTA” (Amadeo, 2018). In addition, Trump has threatened to impose 35% tariff on Mexican Imports.
Some similarities that both Pacific Alliance and NAFTA share are:
Their interest in the Asian Market and a trans-pacific partnership.
Their aim towards trade agreements that benefit the countries involved.
“The Pacific Alliance countries see NAFTA as the standard for regional competitiveness” (Durkin, 2017)
Sources
Acevedo, D. (2017). Alianza del Pacífico: el futuro de América del Sur. [online] Latinamericanpost.com. Available at: https://latinamericanpost.com/index.php/es/banca/16936-alianza-del-pacifico-el-futuro-de-america-del-sur [Accessed 3 May 2018].
Aichele, R. (2015). Dimensions and economic effects of the Pacific Alliance. Munich: IFO Center para International Economics
Alarcon, J., Almodovar, J. and Barguno, J. (2016). El futuro de la Alianza del Pacífico: Integración para un crecimiento productivo. 1st ed. Mexico D.F.: PricewaterhouseCoopers, pp.13-23.
Amadeo, K. (2018). What Is the History and Purpose of NAFTA?. [online] The Balance. Available at: https://www.thebalance.com/history-of-nafta-3306272 [Accessed 3 May 2018].
Barreto, M. (2015). The geopolitical reasons of the Pacific Alliance. [online] GEOPOLITICS.ro. Available at: http://english.geopolitics.ro/the-geopolitical-reasons-of-the-pacific-alliance/ [Accessed 3 May 2018].
Durkin, A. (2017). The Pacific Alliance is Gearing Up to Compete with North America - TradeVistas. [online] TradeVistas. Available at: https://tradevistas.csis.org/pacific-alliance-gearing-compete-north-america/ [Accessed 3 May 2018].
Fort Vancouver Success Academy (1983). The North American Free Trade Agreement. Ottawa: Organization of American State.
McBride, J. and Sergie, M. (2017). NAFTA’s Economic Impact. [online] Council on Foreign Relations. Available at: https://www.cfr.org/backgrounder/naftas-economic-impact [Accessed 3 May 2018].
Comments