| ALIANZA DEL PACIFICO | BERNA 2014 |
Podium regarding the Pacific Alliance – University of Bern, October 7th 2014
THE PACIFIC ALLIANCE | LA ALIANZA DEL PACÍFICO
2. Panel: Juan Fernando Palacio (University St. Gallen), Laurent Bernet (DFAE), Peter Qvist-Sørensen (ZHAW), Cristian Rodriguez (WEF), Ulrich Hinterberger (S-GE), Rodrigo Polanco (WTI UNIBE).
Panel 2 - Perception of the Pacific Alliance from Switzerland
The Pacific Alliance – Opportunities, Concerns and Perceptions, by Peter Qvist-Sørensen, Head of Region Americas, ZHAW, Moderator 2. Panel.
Presentation of Laurent Bernet, Sudamérica, DFAE/EDA
Presentation of Ulrich Hinterberger, Switzerland Global Enterprise (S-GE)
The Alianza: the Best Opportunity for Integrating Latin America, by Juan Fernando Palacio, University of St. Gallen
The Pacific Alliance - An Opportunity for Regulatory Convergence in Latin America, by Rodrigo Polanco, World Trade Institute - School of Law University of Bern
Pacific Alliance: Summing up of Session Two by Felipe Sandoval, World Trade Organisation, Geneva
The Pacific Alliance – Opportunities, Concerns and Perceptions
Peter Qvist-Sørensen, Head of Region Americas, ZHAW School of Management and Law
The Pacific Alliance (PA) needs no further explanation to the business, institutional, journalistic and academic experts, who are dealing with Latin America on a daily or regular basis.
The dynamics among the four PA countries, their joint business potential and orientation towards the Asian countries in general and United States in particular are all "old" news.
For a large group of professionals, however, Latin America and the Pacific Alliance are sometimes still shrouded behind wrongful perceptions and somewhat obsolete information.
And this despite the fact that the official Switzerland, spearheaded by EDA, SECO and S-GE are doing an excellent job in publishing relevant information and establishing a solid co-operative framework for Swiss (and PA) companies, interested in pursuing more business on both sides of the Atlantic.
Last October, I had the privilege and honour to moderate a group of PA experts as a second part of the podium discussion on the Pacific Alliance. The first part, with the participation of the four PA countries' ambassadors, was moderated formidably by Minister Philippe Nell.
Thus, it was possible to get first hand impressions and information regarding political thoughts, integration, business issues, concerns, and ... perceptions.
Obviously, the business opportunities in the four growth countries are a given, driven by the proximity to United States, the demand from China, the investment programmes to improve infrastructure and the environment, the growing middle class and in the case of Colombia, the dividend from the expected peace agreement with FARC.
For Switzerland, these business opportunities are supported by the signed Free Trade Agreements and the business oriented legislation in most PA countries – just have a look at the latest country rankings in IFC's Doing Business¹.
But, perceptions still linger; every time I travel to the continent, my business and academic colleagues are voicing concerns about the personal danger, the abundance of "substances" and the complexities of doing business.
My answer remains the same: Normal prudence is always advisable and being caught left footed at night in the wrong downtown areas of Copenhagen, Paris or Washington D.C. is not beneficial for your health either. International business is complex and cultural understanding is required anywhere in the world, if you want to be successful. As to the "substances": if there were no international demand, there wouldn't be any supply.
Among the experts, concerns are voiced regarding the pace by which the Pacific Alliance wants to expand. The issue is whether the Alliance wants deepen, or to broaden the scope of co-operation. I.e. to concentrate on a few, but significant issues, such as securing the free flow of goods, services, labour and capital, including the mutual acceptance of product approvals. Or, whether the Alliance will expand its scope and number of member countries, including a closer ascension to Mercosur. One of the paradoxes is that the trade among the four members is significantly smaller than the countries' trade outside the region.
Another issue is whether the Alliance is an alliance among equals, or whether Mexico by its sheer size assumes a hegemonic role. The four Ambassadors clearly stated that the Alliance is an alliance among equals with a shared vision and clear mandates to pursue the decided intra and international growth strategies.
For Swiss companies, the Pacific Alliance offer new and interesting market opportunities and the possibility to approach the national markets similarly to a market entry into United States, i.e. designing an overall American strategy by also focusing on each individual state/country.
We at ZHAW – Zurich University of Applied Sciences - are already deeply involved in projects in the PA countries.
These projects range from recycling of E-waste, waste water and hazardous waste, construction of deposits and hydroelectric dams, renewable energy sources, to the sustainable growth of cacao, together with Swiss and PA companies and institutions.
This semester, we have almost 60 students signing up for a weekly class on Doing Business in Latin America with a focus on the Pacific Alliance and Brazil – a 30% increase over last year.
I thank PuntoLatino for allowing me to moderate a part of this very interesting podium discussion on the Pacific Alliance.
¹ Doing Business 2015. The World Bank and International Finance Corporation [IFC] (2014).
Laurent Bernet, Chef suppléant Amérique du Sud, DFAE/EDA
• Towards the end of the year 2012, we, in the DFAE, started to hear and read about the Pacific Alliance. We quickly noted its dynamic, pragmatism and promising development.
• Beginning of 2013, set of political consultations with some of the Pacific Alliance countries – which gave a positive feedback
• April: official trip of Head of Dept. of Foreign Affairs Didier Burkhalter to Peru, chili, Colombia. Showed interest and brought back substantial information
• We suggested launching the process to become an observer State - he approved.
• Internal process launched end of spring, we were accepted as observer in November last year.
• M. Burkhalter gave a clear message: Switzerland wants to be an active observer.
Why observer status? Why is Pacific Alliance of interest for Switzerland?
• Materializes the fourth foreign policy priority that the Swiss Government had approved in March 2012 for the four years of the current legislature (2012-15):
- develop partnerships and alliances with "like-minded" countries, in order to find together sustainable solutions to global challenges;
- support the rule of law, human rights, peaceful conflict resolution, as well as economic and social development as key factors for sustainable development.
• Economy has been discussed in first panel.
• We already have political consultations with each of the countries on bilateral level. Additional mechanism 4+1, beside the bilateral relations that we already have with each of the countries. Open new fora for discussions.
• Those countries are privileged and natural partners. They share important values: democracy, open economy, rule of law, etc.
• Be "on board" of this dynamic initiative, already like-minded before: FTA, DTA, investment protection.
• Join forces to reduce global challenges: climate, environment, natural resources, drugs, organized crime, etc.
• Develop alliances and partnerships art multilateral level.
• Constitutional mandate of the Swiss cooperation: Contribute to tackle poverty and reduce inequalities. Importance that treaties and MoU have substance, concrete elements.
• Brain storming: Switzerland is highly interested in the intensification of the cooperation with the 4 Member States in different sectors of common interest, for instance in the areas of
- education and research, especially vocational education, innovation and competitiveness
- as well as issues related to climate change.
• We have started cycles of conferences on topics of common interest in Bern/ Switzerland with the ambassadors of the four Member countries in Bern. The first conference took place on 9th May, on vocational education.
• Planning other activities until the end of the year, with ETH-Lausanne, SME Association.
• Main message: Switzerland is ready to cooperate with the AdP countries by sharing "know-how and coaching."
In Latin America
• Today and tomorrow a meeting is taking place in Santiago de Chili with some of the observer States, including Switzerland
• Switzerland is being represented by a representative of the Americas Division, FDFA
• Active exchange with our embassies in various matters of interest of the PA
• Switzerland participated for the first time to a summit of the Adp (Cumbre), that was a few months ago - in June in Mexico.
• Meeting with the Grupo de relacionamiento exterior in Santiago de Chili today and tomorrow to design the framework and the settings of the collaboration between Switzerland and the AdP.
- It will be interesting for us to see how to materialize this partnership, cooperation and future work together.
Ulrich Hinterberger, Switzerland Global Enterprise
The Pacific Alliance is unifying the "liberal forces" of Latin America. Over the last decade the four founding member countries Chile, Colombia, Mexico and Peru showed positive growth, stable macro-economic foundations, improved governance and with its commitment to bilateral Free Trade Agreements with several countries and trade blocs such as the European Union, USA, but also Switzerland as a member of the European Free Trade Association (EFTA), an openness towards global integration. In the Latin American landscape this new economic bloc with a total population of over 210m consumers and its dedication to free trade gives a counterbalance to the Mercosur and its flagship Brazil who follow a more protectionist policy and recently show social and economic turbulences.
The refrain, "The Mediterranean is the ocean of the past, the Atlantic is the ocean of the present and the Pacific is the ocean of the future," first heard more than 100 years ago, is still repeated today. The Pacific Alliance states all share access to the Pacific coast and also demonstrate a clear strategic focus towards the markets in East Asia with its tremendous potential and power. Over the past years trade with China has been steadily increasing. Especially their hunger for natural resources makes Latin America an interesting partner. Nevertheless – with the rising middle class and the good reputation European products have in Latin America I would also expect an increasing demand in well-known European brands as well as machinery for industrial production.
Due to its economic potential and diversity, Mexico definitely is the senior partner among the member states . Comparing the economic structure of the four members, we see that the three South American partners export primarily natural resources and import manufactured goods whereas Mexico also has a competitive manufacturing sector (Automotive, Electronics, Med Tech, etc.). The reason for that is its proximity to the United States and its membership within the well-established NAFTA bloc. Still more than 75% of Mexican exports are destined for the United States which makes them highly dependent on the US economy. With the Pacific Alliance, Mexico will get a preferential access to South American markets. Once free movement of labour, capital, goods and services are implemented, I would expect the South American partners to have a better chance to diversify their economies and become less dependent on the world market prices of natural resources.
The key to success will be how the harmonization and integration process evolves and how long it will take to show concrete results from which also SME's can benefit. A lot depends on the political commitment of the member countries in pursuing this long-term project instead of following short-term self-interests.
The Alianza: the Best Opportunity for Integrating Latin America
Juan Fernando Palacio, University of St. Gallen, Author of the book El Sentido de la Alianza del Pacífico (EAFIT, 2014)
Thank you very much, Prof. Qvist-Sorensen. Your Excellencies, dear panelists, dear audience. Let me say in advance that I share the current optimism about the Pacific Alliance. Most of what is important has been already said. I will just try to cover three more points, very briefly. First, a glance at history. Second, some words about what the member countries have in common, and finally I will say a few words about the future of Latin American integration.
First point. Let's look at the blocs of integration in Latin America before the Alliance appeared. Either we had groups with too many members, in which consensus for trade liberalization was impossible, or we had groups with fewer members, but that always remained under a subregional logic: the purpose was to integrate first with the neighboring country, but very often your closest neighbor is not as committed as you are, so integration gets blocked.
Besides, it was doubtful that these smaller groups could be enlarged beyond their subregions. The Central American Common Market was meant to Central American countries only, the Andean Community to Andean countries only and so forth.
Here the Pacific Alliance – or the Alianza – is totally different. First, the group is constituted by few members, which facilitates consensus. Second, the members don't belong to the same subregion of Latin America. This is the first time it happens. It's like if they said to each other, "Hey you know what, let's not wait until our neighbors get ready. Let's start ourselves, and let's keep the door open in case some of them wanna come in."
I find this idea brilliant. The Alianza moved from the neighbor-country logic toward a conceptual conception of integration.
It reminds me a little bit the signature of the Treaty of Rome in 1957, which created the European Economic Community, but in which the U.K. was reluctant to get in. The six founding-members didn't wait for the U.K., they simply moved ahead, building integration at a higher speed. And two decades later the European Community was such an economic success that the U.K. finally applied for membership.
I am seeing the same pattern with the Pacific Alliance. Here you have a small group of countries. They are a community of will. They are building rules for deep economic integration while inviting the others to get in as soon as they feel ready.
In my second point I want to underline some of the features that the countries of the Alianza have in common. One, they have democratic regimes and are keen to improve government institutions. Two, political opposition and freedom of the media are widely respected.
Three, they conduct responsible economic policies, guaranteeing a stable environment for doing business. Four, the economies are free-trade oriented, and both export diversification and foreign investment are encouraged to accelerate development.
And five, and very important, these countries conduct a constructive foreign policy with all actors in the international system, including the U.S.. Indeed the political discourse moved beyond old-fashioned anti-americanism into a terrain of pragmatic cooperation.
I am aware that the spokespersons of the Alianza are very cautious about this subject, affirming that the bloc is not about ideologies. They do well because the principles of the Pacific Alliance should fit both at the left and at the right of the political spectrum. Still, I ask to myself, aren't these five common features that I'm mentioning here a sort of minimalist ideological basis that all the four countries share? A basis, moreover, without which the Alianza wouldn't be a viable project?
I would dare to say that these five points constitute a healthy pro-market and pro-democracy liberal basis, which is exactly what the region needs if it wants to promote prosperity in today's globalized world.
And this is the very reason why the Pacific Alliance is so successful. What we are seeing is some of the countries of the region with the best practices. And at the same time it is them that are taking the right steps toward economic integration.
Third and last brief point. Let's take a look at the future. If the Pacific Alliance continues working this way, it is easy to forecast two important developments for Latin America in the next 20 years.
First, the Alianza will continue exhibiting better economic performance than the regional average. The better results in poverty reduction and growth of the middle-class will become more evident, and citizens from the rest of Latin America will continue to take note.
Second, because of this, this bloc will inspire the other countries. More will want to apply for membership, making the Alianza the new axis of Latin American integration.
However, this enlargement should happen not by lowering the bloc's standards regarding entry conditions, but by persuading the other countries about the importance of these rules.
Hopefully, if the four governments continue working the way they have been doing it so far, we all might witness more outstanding accomplishments in the years to come.
The Pacific Alliance - An Opportunity for Regulatory Convergence in Latin America
Rodrigo Polanco, World Trade Institute - School of Law University of Bern
1. What is the Pacific Alliance?
• From a personal point of view, the Alliance is an effort of economic integration in Latin America like no other before.
• This is because for the first time, the achievement of certain goals was put as an objective before creating an "institution", something unusual in Latin America
2. Is the Pacific Alliance just another organization?
• Not really. In fact it can be hardly considered an organization nowadays, but in a short time has advanced in facilitating the circulation of goods, services, capital and people between Colombia, Chile, Mexico and Peru
• After a general framework agreement, on February 2014 a very detailed protocol was signed, containing all current FTAs disciplines, although is in process of being ratified.
3. Is Mexico the Big Brother?
• Mexico is certainly big, of course and historically it signed the very first FTA of this "kind" – NAFTA.
• But here more than a "leader of the pack" we have 4 countries – 5 if Costa Rica membership is accepted – that are basically on the same page in its policies to promote free trade of goods and services, something that is reflected beyond the Pacific Alliance, in all the FTAs those countries have already in force. The PA can be seen as a consolidation of these policies using the highest (and not the lower) standard.
- True, several PA members export mainly raw materials, but not exclusively. It has been an increasing diversification, especially in services.
- From the point of view of Switzerland, may be interesting that PA Exporters will be able to "cumulate origin" through the integration of inputs from any other member in order to produce a final good, thus reducing production costs.
4. Why the Pacific Alliance is interesting for Swiss SMEs?
a) From a regional point of view, because now investment rules will be basically the same in the four countries that are PA members. The PA Protocol has an investment chapter more developed and detailed than NAFTA (closer to recent FTAs signed by the US)
b) Still, Swiss investors will find country-by-country differences, but with the common background provided by the PA Protocol, there is higher chance of regulatory convergence in investment measures. Similar rules adopted in the same framework, make investment in the region more predictable.
5. Where the Pacific Alliance is looking?
a) First, is clear that the PA members have been looking not East, not West, but to the North. All PA members, have an FTA with the United States and Canada, that clearly follows the NAFTA pattern.
b) But the future of the PA seems to be also looking to the West – towards Asia. This explains why 3 PA members (Chile, Mexico, Peru) are also negotiating the Trans-Pacific Partnership (TPP) with Colombia also declaring its interest to join these negotiations.
• PA members do not seem to be looking to Europe, and in general all their agreements with the EU are more political than economic in nature.
• Plus, the EU is increasingly questioning one cornerstone of the foreign investment protection: Investor-State arbitration.
6. How expand the cooperation between the Pacific Alliance and Switzerland?
a) Swiss Government has already taken a right step, becoming an observer to the Pacific Alliance
b) PA countries, needs to disseminate more information on the Alliance, in events like this one, and make available the PA treaties in ENGLISH
c) Swiss companies needs to evaluate the benefits that they could reap from a closer integration of the PA countries, but the main role here is for governments, they need to provide with information.
Remarks by the World Economic Forum
Cristian Rodriguez Chiffelle, Associate Director of International Trade and Investment, World Economic Forum (WEF)
The World Economic Forum is an international institution committed to improving the state of the world through public-private cooperation. It engages businesses, political, academic and other leaders of society in collaborative efforts to shape global, regional and industry agendas.
Comprising 36% of Latin American population, 50% of its international trade, 45% of FDI inflows and 37% of GDP, the Pacific Alliance countries, taken together, are the world's 8th economy. Not only size, but also its innovative SMEs focus, innovation, a common stock exchange – MILA - and more, has brought on worldwide early attention to it. Beyond its own borders, a myriad of observing countries and institutions are playing close attention to the Pacific Alliance's accumulated and future knowledge, which can be then turned into sound and actionable policies that benefit the member countries and their private sectors in particular.
As the world ́s foremost representative multi stakeholder organization, cooperating closely with all leading international organizations and players is one of the Forum ́s key objectives. Hence, it is only natural that the World Economic Forum has been interested in the innovative process of the Pacific Alliance since its beginnings.
In fact, in accordance to H.E. President Juan Manuel Santos, the idea of the Pacific Alliance was born during the World Economic Forum's Annual Meeting in Davos, and then taken to President Alan Garcia, who championed the initiative forward. The Forum has hosted a number of private and public sessions focused on the Alliance, including at our Latin American summits in Peru (2013) and Panama (2014), and a "Promise of the Pacific Alliance" session in Davos 2014, featuring presidents Santos and Peña-Nieto, and the Ministers of Finance of Chile and Peru, with the President of Panama and the Costa Rican Minister of Foreign Affairs (as likely future members) counted among the audience. Next year's Latin American summit at Riviera Maya, Mexico, will yet again feature a relevant focus on the Alliance, streamlining public- private cooperation to enhance the process.
The Forum is very well known for its convening role in global and regional summits, such as its Davos-Klosters annual meeting and a Latin American yearly summit. However, an additional but crucial feature of the World Economic Forum is to drive projects and initiatives together with our constituents, including governments and regional organizations such as the Pacific Alliance. As such, the Forum's trade work includes the development of a series of indexes, surveys and reports, on matters such as enabling trade and global competitiveness, and also the work developed by our Global Agenda Council on different trade and investment topics.
The Pacific Alliance is moving progressively towards the free movement of goods, services, capital and people within its member countries, and to project the block as an attractive area for trade and investment, particularly with Asia Pacific countries. In this context, it is important to identify the key enablers of efficient regional production chains, and to describe quantitatively the barriers to trade among member countries that could hinder them. Hence, trade facilitation issues are of the essence.
For the World Economic Forum, trade facilitation in particular has been a specific area of attention. The Enabling Trade initiative works to reduce practical barriers to trade, looking to identify supply chain barriers and accelerate reform to overcome them. Within this framework, and in collaboration with Bain & Company and the Inter-American Development Bank, last year the Forum developed the report "Enabling Trade in the Pacific Alliance." The study combined a review of the potential for integrating production in the region with a targeted survey of regional businesses, and a selection of illustrative case studies.
Trade ties across the Pacific Alliance countries are currently limited. For each country, trade within the Alliance represents on average only 6% of its total exports. The Forum's report aimed to identify unresolved non-tariff barriers, which hindered the full potential of the initiative, both internally and in terms of the region's outward facing competitiveness. The report's survey results provided early signals of which barriers are seen as most restrictive to trade within the Pacific Alliance, highlighting shortcomings on land infrastructure (identified by 39% of the surveyed companies), public information on freight and border control infrastructure, among others. To illustrate this issue, case study #1 describes the challenges facing transport along Peru ́s Pan-American Highway, and presents the liberalization of cabotage regulations as a potential solution. Furthermore, another study on the efficiency of inspections and time to process paperwork was also developed, which found that sanitary certification requirements present a low level of harmonization between Pacific Alliance countries, creating duplicate processes that delay entry of goods.
By providing insights on private-sector priorities, the objective has been to put forward relevant inputs for the Alliance countries that can be used in their integration agendas for the future. In fact, policy-makers and representative from the private sector discussed this inputs at 2014 ́s World Economic Forum on Latin America, streamlining future measures to address the deficiencies presented on the report. Through such instruments, the Forum has indeed supported implementation of policy recommendations to advance the trade facilitation agenda of the Pacific Alliance.
Nonetheless, beyond some natural shortcomings as the ones represented in the report, the Pacific Alliance truly has an innovative framework to offer: its Business Council (CEAP – Consejo Empresarial Alianza del Pacífico), MILA, the focus on SME's and innovation, student mobility initiatives and the business matchmaking forums are all new ideas that have already converted into reality. The emphasis on the private sector, which was highlighted during the panel on "The Promise of the Pacific Alliance" at Davos by Presidents Santos and Peña Nieto, is also a much-welcomed focus of the initiative. Furthermore, the Alliance focus on movement of people is a big space of synergy between their work and the Forum ́s. For many years, the World Economic Forum has been focusing on this topic as a crucial contributor to trade, supporting a series of meeting with tourism authorities, writing reports, etc.
At the Pacific Alliance, businesses and governments work together on issues that matter. In that regard, the role of export and investment promotion agencies is another feature to be highlighted. Furthermore, trade facilitation and the effort on boosting single windows are essential public initiatives, which directly benefit the role of the private sector in enabling trade, especially SMEs that otherwise face an overwhelming bureaucracy when trying to insert their business at the international level.
As part of its E15 joint Initiative (www.e15initiative.org), the Forum is seeking to address many of these questions, by developing long-term policy options for the multilateral trading system. Through offering those options for review of all stakeholders, the Forum aims to foster better policy-making also at the regional level, including at innovative trade frameworks such as the Pacific Alliance. Starting in 2015, the Forum will be deploying a regional strategy to disseminate those policy options, including of course at the Pacific Alliance and other regional coalitions.
In the future, the Pacific Alliance seems to be well in its way to become an example of good practices to a ground where business and government work together on issues that matter. The World Economic Forum recognizes the relevance of this approach, and is looking forward to further engage enhancing the Alliance ́s trade environment.
CRCh / WEF Nov. 2014
Pacific Alliance: Summing up of Session Two
Felipe Sandoval, World Trade Organisation, Geneva
The Pacific alliance has attracted significant attention from a number of countries and institutions.
Swiss permanent search for new alliances among like minded nations. A vocation for "alliance building".
Both public and private sectors see opportunities. Now, expectations come into play. Business plans are highly dependent on expectations.
On the character of the Pacific Alliance, there is the issue of democratic values. The relationship between democracy, economic freedom, international trade and prosperity .
The Pacific Alliance is different from other regional initiatives . Is it "goal driven" rather than institutionally driven. Pragmatism and economic realism are key elements in the making of the project.
The Pacific Alliance copies many aspects of existent free trade agreements. However, this is not to be understood as a negative note. Romans copied from the Greeks..... and shaped our world. Copying can be a good thing.
The World Economic Forum is currently working on a set of policy tools for government to consider using.
The asymmetry of Mexico as the largest, most influential partner in the Pacific Alliance. Is this likely to have a NAFTA effect? .... What is clear though, is that Mexico does and will continue playing a fundamental role in the Pacific Alliance viability.
In contrast, there is the balancing role of inner democracy. Internal procedures seek to soften objectives asymmetries (market size, demographics ).
Does the Pacific Alliance only look eastwards? What about the rest of the world? What about Europe?
Clearly, the Pacific Alliance does not only look towards the east. However, the world is changing and greater attention is now drawn by Asia. The reasons are obvious. Economic growth, large emerging markets, and an increasing demand for goods, services, and investments.
Follow up is critical. Political support and technical work must continue fueling the process in the future.
Selecting a few specific issues and building convergence among them. This has the potential of delivering concrete results. The kind the business community is waiting for to step in.
From an European perspective, taking advantage of the "cultural factor". Latin America is closer to Europe than to Asia. Customs, languages, ethics, and a share understanding of the world can make a big difference when doing business.
And last but not the least, environmental concerns. These cannot be ignored. Modern trade agreements incorporate sections, chapters or provisions on environment.
¿Qué sugerirías para tema del II Pódium de PuntoLatino / UniBeLat?
José Parra Moyano de PuntoLatino, introduce el Pódium, después de las palabras de bienvenida de Alex Ramos de PuntoLatino Berna.