Regional Integration in

Latin America and the

Caribbean:
The role of the Pacific Alliance
Marcelo Dolabella
International Trade and Integration consultant

José Durán Lima

Chief of the Regional Integration Unit,
Division of International Trade and Integration,
ECLAC, United Nations Seoul, November 29 2019
Summary

• Global and regional perspectives. Trade tensions

worsen and regional trade falls.

• Regional Integration. Current status and the role

of the Pacific Alliance.

• Regional Integration Challenges in Latin America.

Implications for LAC-Korea cooperation
Global and regional perspectives
 The slowdown of global trade has worsened
due to the build-up of trade barriers
Year-on-year change in the volume of global Coverage of import restriction measures,
merchandise trade, January 2012–July 2019 October 2012–December 2019
(Percentages) (Billions of dollars)
1200

1000 1,029

800 728

600 588

400

214 228 340 301

201
200

101 79
0
Oct 2012- Oct 2013- Oct 2014- Oct 2015- Oct 2016- Oct 2017- Oct 2018- May 2019-
oct 2013 oct 2014 oct 2015 oct 2016 oct 2017 oct 2018 may 2019 dic. 2019
a
Monto nuevas medidas Restricciones acumuladas desde octubre de 2017

Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the
basis of World Trade Organization (WTO), Report of the TPRB from the Director-
General on Trade-Related Developments (mid-October 2018 to mid-May 2019),
Source: Economic Commission for Latin America and the Caribbean
(WT/TPR/OV/W/13), Geneva, 2019, and ECLAC estimates for the period 16 May to 31
(ECLAC), on the basis of Netherlands Bureau of Economic Policy Analysis
December 2019.
(CPB), World Trade Monitor [online database]
https://www.cpb.nl/en/worldtrademonitor. a This estimation considers only measures implemented and those officially
announced up to 1 September 2019.
In 2019, the value of regional trade is
projected to fall for both exports and imports
Latin America and the Caribbean: annual variation in merchandise trade by price, value and volume,
2000–2019a
Exports (Percentages) Imports
30 40

20 30

20
10
10
0
0
-10
-2
-10 -3
-20 -20

-30 -30
2000

2002

2004

2006

2008

2010

2012

2014

2016

2018

2000

2002

2004

2006

2008

2010

2012

2014

2016

2018
Volumen Precio Valor Volumen Precio Valor
Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of official information from customs offices, statistical institutes and
central banks of the countries.
a The figures for 2019 are projections.
Internal and external factors constrain the
region’s export performance

DOMESTIC FACTORS EXTERNAL FACTORS

Production
and export Deficient Slowdown in
Low GDP Trade
structure infrastructure international
growth tensions
anchored in and logistics demand
commodities

•Slowdown in exports, imports and investment •Fall in raw material prices

•Deepening of the recessionary demand cycle •Heightened financial and
exchange-rate volatility
•Trade diversion

Source: Economic Commission for Latin America and the Caribbean (ECLAC)
The region’s weak growth mirrors the sharp
contraction in intraregional trade
Latin America and the Caribbean: annual variation in the value of intraregional exports
and exports to the rest of the world, 2007–2019a
(Percentages)
40

30

20

10

0
-1
-10
-10
-20

-30
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Intraregional exports Exports to the rest of the world
Source: ECLAC, on the basis of official figures from the countries’ central banks, customs offices and national institutes of statistics.
a Figures for 2019 are projections.
Intraregional trade remains well below its
maximum levels registered in 2011–2013
Latin America and the Caribbean: intraregional exports of goods, 1991–2019 a
(Billions of dollars and percentages of total goods exports)

Exportaciones intrarregionales Participación exportaciones intrarregionales en exportaciones totales (eje derecho)

250 25

200 20
15.5

150 15

100 10

50 5

0 0
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
MERCOSUR creation, Andean Community relaunch Crises Commodity supercycle Economic slowdown
Source: ECLAC, on the basis of official information from countries of the region, the Andean Community and the Central American Common Market.
a Figures for 2019 are projections.
Regional Integration
 Latin America and the Caribbean are 3 sub-regions
in one, and with different export patterns

Caribbean
Services
Mexico & Central America
Manufactures
Atlantic Ocean
Pacific Ocean

South America
Total area:
Primary products approx. 20.5 million km2

EU (28) and ASEAN:

4.5 million km2 each
 The architecture of regional integration in
LAC is very complex

DR-CAFTA
Jamaica
Dominican Rep.
Trinidad and Tobago
USA
CACM Guatemala
USMCA
El Salvador Honduras Bahamas Barbados
Canada Costa Rica Saint Lucia Guyana
Antigua & Barbuda Belice
Mexico Saint Kitts &
Panama Nicaragua S. Vicent
ALBA & The Granadines CARICOM Nevis
Suriname
Andean Cuba Haiti
Grenada
Pacific
Community Dominica Surinam
Bolivia, P.S Venezuela
Alliance Ecuador

Colombia Brazil
Peru Paraguay
Chile
MERCOSUR LAIA
Argentina (ALADI)
Traditional Regional Integration schemes
in LAC

Caribbean
Community
(1973)
Central American
Common Market
(1960)

MERCOSUR
Andean (1991)
Community
(1969)
The Pacific Alliance (PA) – Overview (2018)
• Created in 2011
• Member countries: Chile, Colombia, Mexico
and Peru
• Population: 231 million inhabitants
• 36% of LAC’s population
• GDP: US$ 2.7 trillion
• World’s 8th biggest economy
• 36% of LAC’s GDP
• GDP per capita: US$ 18,921
• Foreign Direct Investment: US$ 60.8 billion
•33% of total LAC FDI inflow

• PA members have signed 40 Free Trade

Agreements with 80 different countries

Source: World Population Reference 2018, World Bank Development Indicators, ECLAC (2019a) , Pacific Alliance (2019)
Objectives of the Framework Agreement of
the Pacific Alliance
1 - Build a deep integration area
• advance progressively towards the free circulation of goods,
services, capital and persons

2 - Boost growth, development and competitiveness of member

states’ economies
• improve welfare, reduce inequalities and enhance social
inclusion

3 - Become a platform for political articulation, economic and

political integration and projection to world
• emphasis on the Asia Pacific region
Which is the value added of the PA’s
Commercial Protocol?
• Wide coverage comprising, among others:
• trade in goods;
• services;
• investment;
• government procurement;
• trade facilitation (Single Window System);
• maritime transport;
• telecommunications;
• financial services;
• electronic commerce.
• cumulation of origin
• Creation of the Business Advisory Council (CEAP in Spanish)
Market access: liberalization is already a reality that
will accelerate in the coming years.

• Approximately 88% of intra-PA trade (2014) ; 97% in 2020

• Intra-PA average applied tariff: 0.45%
Pacific Alliance: Share of duty free imports in intra Pacific Alliance trade
(In percentages of total imports)
100 98 98 98 97.6 99 98
97 98
96 97
93.7 95 95 94
95

90
84
85

80

75
Chile Colombia Mexico Peru Pacific Alliance
2016 2020 2030

Source: Duran and Cracau (2016) .Information from COMTRADE database and tax relief schedules of the Additional Protocol to the Framework Agreement
Intra-PA trade accounts for less than 3% of
PA’s total exports of goods
Pacific Alliance: intraregional exports of goods, 1992–2018
(Millions of dollars and percentages of total goods exports)
Creation of the
25 4.5%
Pacific Alliance
4.0%
20 3.5%

3.0%
15
2.5%

2.0%
10
1.5%

5 1.0%

0.5%

0 0.0%
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
Intraregional Exports Share of intraregional exports in total exports
Source: ECLAC based on COMTRADE data
The share of intra-bloc trade in the PA is lower
than in all other economic integration groups

Intraregional exports of goods, 2017-2018a

(percentages of total goods exports)

European Union 64
USMCA 50
ASEAN+5 49

CACM 27
LAC 16
CARICOM 13
MERCOSUR 12
Andean Community 7
Pacific Alliance 3

0 10 20 30 40 50 60 70

Source: ECLAC with data from UN COMTRADE database.

In the case of ASEAN+5, the figure is from 2016.
a average
Intra-PA economic interdependency is larger in
services and FDI

• Intraregional FDI flows represent 12% of total outflows.

• Chile and Mexico are the main destinations.
• An important portion of the FDI goes to the service sector (retail,
construction, communications, finance)
• Relevant firms based in Pacific Alliance countries: America Movil (Mexico);
LATAM (Chile); AVIANCA (Colombia);

• Intraregional trade in services represents 11% of total trade in

services. That share increases to 17% if Mexico is excluded.
• 28% for Peru; 17% for Colombia; 10% for Chile and 4,5% for Mexico.
• In the business services sector, intra-PA share is larger
(between 12% and 30%).

Source: Duran Lima and Cracau (2016)

Regional Integration Challenges
in Latin America
 76% of total intra-LAC trade receives
preferential tariffs

Mexico

Honduras Dominican Republic

MFN Tariff Guatemala
El Salvador Nicaragua
24%
Costa Rica Venezuela
Panama
Colombia
Preferential Ecuador
tariff
Peru
76% Brazil
Bolivia
Paraguay
Chile
Room for further integration
• Further Tariff reduction Uruguay
• Agreements for harmonization/streamlining Argentina
of rules and standards
• Tackling infrastructure and Trade Facilitation
issues (reduction of procedural costs)
Trade costs of Non-tariff measures (NTMs) are
larger than ordinary customs tariffs
Latin America and the Caribbean: tariff and non-tariff protection in
intra-regional trade, 2015 a
(in percentages)
7 6.4 6.3
6
5.1
5
3.8 3.9 3.8
4

3 2.5 2.3
2.1 2
2 1.4 1.6 1.4
1.3
1

0
Andean MERCOSUR Central Pacific The Mexico LAC
Community America Alliance Caribbean
Applied Tarrifs Equivalent ad valorem due to NTMs

Source: a AVE estimations for NTMs were retrieved from Dolabella & Durán Lima (2020)
Low level of intra-regional trade might be partially attributed
to the low level of complementarity in the region’s economies

Breakdown of total PA merchandise exports

by technology intensity, 2018 (%)

100% 1 2 0
3
4
3 10 5
90% 22
6
17% 80%
24% 24
70% 44 18

14% 60%
38% 49
50%
8%
40%
64 67
30%
Primary goods 48 9
20%
Natural resource-based manufactures 8
Low-tech manufactures 10%
Medium-tech manufactures 12
0%
Hi-tech manufactures
Chile Colombia Peru Mexico
Source: Economic Commission for Latin America and the Caribbean (ECLAC).
Brazil and Mexico import more industrial intermediate
goods from the rest of the world than from the rest of LAC

Brazil and Mexico: Distribution of industrial intermdiate goods by origin of

imports, 2017-2018
(In percentages)

BRAZIL MEXICO

Rest of Asia
Rest of Asia Japan 0%
Rest of the United States Rest
1% World 18% 4%
ASEAN World
Japan 20%
26% 5% Korea 8%
3%
ASEAN European 4%
29% 5% Union
19%
Korea China
13% United States
4%
México 53%
China 2% Rest of LAC
Argentina
16% 1%
Rest of LAC Chile 4% Brazil European
6% 2% 2% Chile Union
Argentina
0% 10%
0%
Source: ECLAC based on data from UN Comtrade.
LAC is more connected with itself than with Asia Pacific,
and 6 countries concentrate trade links

Flow of Domestic Value-Added generated in Latin America, All Sectors, 2011

Others Others Others
LAC LAC LAC

PER
PER
Rest of
MEX the
COL World

CHL
COL

CHL
BRA
USA

BRA
ASIA
PACIFIC
ARG
ARG
PA

Origin Re-exporter Destination

Transformer country
At a regional level, the economic relevance of the Pacific
Alliance plus MERCOSUR is substantial

Pacific Alliance and MERCOSUR: Selected Indicators (2017-2018)

GDP
Integration Population Exports Inward FDI
(current USD
Scheme (millions ) a (USD billions) (USD billions)b
trillions)

Pacific Alliance 1,8 231 627 66

MERCOSUR 3,7 264 285 69
Latin America and 6,3 649 1,085 146
the Caribbean
% Pacific Alliance 28% 36% 58% 45%
% MERCOSUR 60% 41% 26% 48%
% PA + MERCOSUR 88% 76% 84% 93%
Source: UNCTAD (FDI), ECLAC (GDP and exports), World Population Reference (population).
a Population data from mid-2018. b FDI data doesn’t include Caribbean financial centers.
 Conclusions
• There is a great potential market in Latin America and the Caribbean
• 8.4% of world’s population
• Large supplier of natural resources (especially South America)
• However convergence between PA and MERCOSUR is crucial for
unlocking this potential.
• Brazil and Mexico could take the lead
• Step-by-step approach
• The large economies of Latin America should follow the steps
taken by East Asia to promote productive integration
• Challenges to be addressed:
• lack in infrastructure investment;
• increasing transport and digital connectivity and facilitating the
business environment;
• implementing trade and investment facilitation measures;
• reducing the restrictiveness of ROO;
• promoting a common digital market.
 Role of Korea-LAC cooperation

• Some ideas for on-going and further cooperation

• Knowledge sharing on Asian experience: RCEP
• Exchange of best practices in different fields
• Promote capacity building among government officials
• Improve knowledge of both regions
• Korea-LAC Business Forum; FEALAC Business Forum; Korea-LAC Business
Summit.
• Funding of development projects
• FEALAC Multi-Donor Trust Fund (MOFA contribution – 3 million USD)
• ECLAC has been developing a series of projects funded by Korea
• Internationalization of SMEs
• Reducing inequalities in LAC and Asia-Pacific
• Value chains development for a deeper integration of LAC and Asia-Pacific
Regional Integration in Latin
America and the Caribbean:
The role of the Pacific Alliance

Marcelo Dolabella
International Trade and Integration consultant

José Durán Lima

Chief of the Regional Integration Unit,
Division of International Trade and Integration,
ECLAC, United Nations Seoul, November 29 2019