The New Trans-Pacific Partnership

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The New Trans-Pacific Partnership

The Pacific Alliance and ASEAN are crafting a key partnership of their own.

The New Trans-Pacific Partnership
Credit: Flickr/ Alianza Pacifico

At the margins of last year’s United Nations General Assembly and on the occasion of their third ASEAN-Pacific Alliance Ministerial Meeting, the Pacific Alliance (Chile, Colombia, Mexico, and Peru) and the Association of Southeast Asian Nations officially subscribed to the “ASEAN-Pacific Alliance Framework for Cooperation.”

The agreement, which will frame these groups’ future collaboration on the economic, educational, scientific-technological, and sustainable development fronts, is the first of its kind between an East Asian and a Latin American regional organization. As such, it underscores the widening scope and growing importance of ties between these two regions, and reflects the gradual deepening of inter-regional relations at different levels of institutionalization.

With different alternatives on the table for Pacific Basin trade after the demise of the Trans-Pacific Partnership (TPP) and with the Pacific Alliance displaying its potential for spearheading ties between Asia, the Pacific, and Latin America, deeper ASEAN-PA cooperation could well evolve into a key partnership with strategic implications, not only for its members but also in the wider Asia-Pacific theater.

The Pacific Alliance and Latin America’s Pivot to Asia

In 2012, Chile, Colombia, Mexico, and Peru launched the Pacific Alliance, an innovative integration model bringing together the region’s most open and dynamic economies. Together, these countries represent a market of 215 million people, 40 percent of Latin America’s GDP, and 52 percent of regional trade.

The PA’s most distinctive feature, and what set it apart from a myriad other integration efforts in Latin America, was its express aim to orient its members’ economies toward the Asia-Pacific. Behind this initiative was the need for economic diversification to sustain an export-led growth model, as well as the acknowledgement of global transition toward an Asia-centered economy. The latter was especially reflected in Latin America through high levels of Chinese investment, finance, and demand for raw materials and agricultural goods.

Since then, the Pacific Alliance has made significant progress on commercial integration (over 90 percent of tariffs have been dropped), ease of doing business, and coordinated diplomatic approaches. This has contributed to advancing relations with Asian countries, while building up the bloc’s credentials as a successful initiative. Now, in line with regional and global changes, more actors are seeking to cooperate with the Pacific Alliance. Prime examples are neighboring Argentina and Brazil, who have been actively calling for closer Mercosur-PA ties. Similarly, French President Francois Hollande conveyed France’s and the EU’s strong interest in formalizing ties with the PA during his visit to Chile and Colombia last January, as did the Spanish foreign minister in Peru and Mexico in early March.

These overtures have been well received by member countries, who are seeking to develop new partnerships and expand commercial opportunities — especially after the TPP fell apart. Indeed, during a virtual summit held on March 9, Pacific Alliance presidents vowed to further deepen the bloc’s integration levels and expand commercial networks — among which ASEAN and Mercosur were pinpointed as top priorities.

Yet in a further step aimed at consolidating the bloc’s position as a core actor of trans-Pacific trade, Chile  – currently the P.A.’s pro tempore president – organized the “High Level Dialogue on Integration Initiatives in Asia Pacific: Challenges and Opportunities” last March 14-15, where foreign and trade ministers of TPP signatories, along with China, South Korea, and Colombia, explored new alternatives for Pacific Basin trade. At the outset, participants agreed to continue the discussion through APEC and reaffirmed their commitment to “high-standards free-trade.”

On its end, Pacific Alliance countries announced the creation of a figure of associated state to the bloc, which could become a key element in the Pacific Alliance’s expansive drive. According to Chilean Foreign Minister Heraldo Muñoz, this will facilitate the negotiation of “rapid, high-quality, and high-standards” FTAs with interested counterparties — which could be either individual countries (Canada and New Zealand are said to be first on the list, along with Costa Rica and Panama) or blocs of countries, such as ASEAN.

Growing Ties Between the Pacific Alliance and ASEAN

Bloc-to-bloc ties between the PA and ASEAN began in 2014, when the first Ministerial Meeting was held on the sidelines of that year’s UN General Assembly. Regular dialogues have occurred since then, the last one paving the way for more institutionalized relations through the “ASEAN-Pacific Alliance Framework for Cooperation.” The agreement’s four key areas of cooperation (economy, education, science and technology, and sustainable development) would lay the foundations for building a comprehensive partnership. And while, for now economic ties rank higher on priorities, incentives for deeper ties could rapidly build up.

Commercial ties with Southeast Asia can be traced back to the 1970s, when Singapore was a major investor in Latin America. However, inter-regional trade began to expand significantly in the first decade of the 2000s. By 2013, trade between Pacific Alliance countries and ASEAN was calculated at $16.8 billion, with a $1.2 billion deficit unfavorable to the Latin American bloc. Nowadays, about 0.6 percent of Pacific Alliance exports go to Southeast Asia, making the four countries eager to exploit the opportunities offered by ASEAN: a 600 million people market, a $2.6 trillion GDP, and outstanding middle class potential in Indonesia and the Philippines.

Higher levels of trade between Southeast Asian and Latin American countries led to a number of bilateral investment treaties (BITs) in the late 1990s, followed by free-trade agreements in the 2000s. Today, nine FTAs are in effect and three others are being negotiated — all of them including a Pacific Alliance member or aspiring member (Costa Rica and Panama), and with Chile and Singapore accounting for the greatest number of these treaties.

Currently, ASEAN-PA economic cooperation does not contemplate a multilateral FTA, but existing bilateral treaties could well serve as the grounds for such an agreement later on. In addition, in light of complementarities and intra-industry potential in the automobile and electronics sectors, the Pacific Alliance and ASEAN are prioritizing global value chains as one of their main collaboration areas. Undoubtedly, the evolution of PA-ASEAN trade patterns along this line would increase incentives for an eventual multilateral agreement and for comprehensive cooperation, raising the stakes of the relation in terms of wider trans-Pacific networks.

Already in October 2015, Songsak Saicheua, director general for American and South Pacific affairs at Thailand’s Ministry of Foreign Affairs, had signaled that such an evolution would be natural in the future of these blocs’ relations. He made the comments at “The Pacific Alliance and ASEAN: Synergies and Perspectives for Cooperation” conferece in Bangkok.

Challenges, Opportunities, and Strategic Implications

Despite public diplomacy efforts by Pacific Alliance and ASEAN members alike emphasizing the desirability of upscaling their relations, actual progress will face challenges on several fronts. Inadequate infrastructure and high logistic costs remain a problem, as well as relatively low mutual cultural awareness between these highly diverse groups of countries. Different levels of institutionalization in each bloc, potentially competing national interests, and changes in domestic political landscapes could also hinder the progress of relations.

Nonetheless, the current context offers the Pacific Alliance and ASEAN an outstanding opportunity to build up their partnership. As the exploration of alternatives for Asia-Pacific economic integration will involve different levels of relations between stakeholders — ranging from wide-scope fora such as APEC or FEALAC (the Forum for East Asia-Latin America Cooperation) and intermediate spaces like the ASEAN-PA dialogue, to bilateral relations — interaction between countries from these blocs at each one of the levels of inter-regional relations will make them key stakeholders for new Pacific trade options.

In the past too, countries such as Chile and Singapore had a critical role in shaping inter-regional ties, as seen through the founding of FEALAC in 1999 and the “Trans-Pacific Strategic Economic Partnership” (P4) in 2005 (the first FTA linking the Asia-Pacific and Latin America and forerunner to the TPP). Today, a new critical window opens as different levels of inter-regional relations overlap and Pacific Alliance and ASEAN countries occupy key positions in APEC and FEALAC (the 2017/18 regional coordinators will be Laos and potentially Peru). This, added to regular interaction through their own mechanisms, gives Pacific Alliance and ASEAN members the chance to simultaneously scale up their partnership and play an instrumental role in fashioning new trade scenarios, including various channels such as the PA’s associated state, the China-led and ASEAN-centered Regional Economic Comprehensive Partnership (RCEP), or APEC’s wider Free Trade Area of the Asia-Pacific (FTTAP) — also strongly backed by China but including the United States.

Finally, as alternatives unfold, the strategic implications of a strong Pacific Alliance-ASEAN partnership will become increasingly visible in the balancing function the relationship can play vis-à-vis economic superpowers. Indeed, economic diversification, which is itself a form of hedging, will help these blocs to lessen economic dependence on major powers, while protecting them from the effects of an eventual trade war. At the same time, stronger bloc-to-bloc ties could serve as a soft mechanism to offset an increasingly strong influence of China in both trans-Pacific and in East Asia-Latin America relations, thus contributing to a stable, balanced environment for the progress of inter-regional relations.

Anaïs Faure holds a Master’s in Korean Studies from the Academy of Korean Studies and a Master’s in Development Policy from the KDI School of Public Policy and Management, both in South Korea. Her research interests include the dynamics of East Asia-Latin America relations and South Korea’s foreign policy.