Background research done while in PwC Mexico. Some parts were included in the PwC publication "Future of Pacific Alliance", that was presented in the presidential summit in Chile on July 2016.
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Pacific Alliance: Recent Developments and Prospects in the Region
1. 1
Chapter 1.
Pacific Alliance: Recent Developments and Prospects in the
Region
1.1. Political, economic and trade integration agreement
Both the General Framework of the Pacific Alliance Agreement and the Additional
Protocol1, have been signed by the Presidents and ratified by the Congresses of
Chile, Colombia, Mexico and Peru. The Pacific Alliance will formally enter into
force on May 1, 2016.2
The purpose of the agreement is to:
a. Build, in a participatory and consensual manner, an area of
deep economic integration and to move gradually toward the free
circulation of goods, services, capital, and people;
b. Promote the growth, development and competitiveness of the
Parties’ economies, aiming at achieving greater welfare,
overcoming socioeconomic inequalities, and achieving greater
social inclusion of their residents; and
c. Become a platform for political articulation, and economic and
trade integration, while projecting these strengths to the rest of the
world, particularly the Asia Pacific region.3
Since 2011, when the process of negotiation started, the agreement has sparked
interest in the international community. To date, there are 42 countries from 5
continents participating in the process as observers.
Re Americas Europe Asia Australia and Nz
1 United State of
America
Netherlands Israel Australia
2 Canada France Turkey New Zealand
3 Guatemala Belgium Georgia
4 Honduras Finland China
5 El Salvador Sweden India Africa
6 Costa Rica Spain Thailand Morocco
7 Panama United Kingdom Singapore
1
This instrument contains the operational rules of the Agreement in 19 chapters. See
https://alianzapacifico.net/
2
The Senate of Chile ratified the Additional Protocol in January 2016. The term of the Agreement begins
three months after this latter ratification is delivered to the depositary of the Pacific Alliance —the
government of Colombia.
3
Framework Agreement of the Pacific Alliance, article 3
2. 2
8 Dominican Rep. Portugal Indonesia
9 Trinidad and
Tobago
Austria Japan
10 Haiti Denmark South Korea
11 Uruguay Germany
12 Paraguay Italy
13 Ecuador Switzerland
14 Poland
15 Hungary
16 Greece
It is a deep integration, open regional agreement which scheme is inter-
governmental decision-making.4 It is also a mechanism for political and economic
cooperation and articulation. The decision-making process takes place within the
Presidential Summits. In the periods between summits, one of the Presidents is
chosen as Pro Tempore President for a year.
While the four member countries already have free trade agreements with each
other, with the entry into force of the Pacific Alliance Agreement 92% of the
products will be immediately written off, while the remaining 8% (primarily sensitive
4
Open regionalism implies the growing economic interdependence among countries, with liberalization and
deregulation, to increase competitiveness and better insertion in the international context. Any country
that wishes and meets certain requirements (affinity valuesand having free trade agreements with each of
the members) may be part of the Agreement. Deep integration includes not only tariff reductions, but
above all the elimination of non-tariff barriers (standardization and harmonization of regulations and
standards) and other special topics such as: telecommunications, electronic commerce, investment,
financial services, government procurement. AP has not created a supranational structure for its
management. It is handled through existing government structures.
3. 3
agricultural products such as corn, wheat, coffee, bananas, beans and potatoes)
will do it over a period of 2-17 years. Only sugar was left out of the agreement.
It is worth mentioning that an important feature of the agreement, that was then
repeated in the Trans-Pacific Partnership (TPP), and which consists of the
coexistence of the agreements, leaving the parties (exporter and importer) the
decision on which agreement will govern their transactions.5
To date, ten Presidential Summits have been held and each had generated
concrete results among the parties, thus having qualified the agreement as a
flexible and pragmatic tool.
Date Event Results
Thursday,
April 28,
2011
I Summit, Lima, Peru It was agreed to establish the Pacific Alliance as an area
of deeper regional integration.
Sunday,
December
04, 2011
II Summit, Merida,
Yucatan, Mexico.
The draft Framework Agreement is negotiated.
Two memorandums of understanding are signed: on
climate change and for the promotion of trade in services
and investment
Monday,
March 05,
2012
III Summit, virtual The text of the Framework Agreement is approved.
The Pacific Cooperation Platform is created to design and
promote projects in four areas: climate change; MSMEs;
science, technology and innovation; and social
development.
Wednesday,
June 06,
2012
IV Summit, Antofagasta,
Chile
The four presidents signed the Framework Agreement.
The scientific research network on climate change starts.
The negotiations on electronic commerce are completed.
Saturday,
November
17, 2012
V Summit, Cadiz, Spain
(in the framework of the
XXII Ibero-American
Summit)
Agreement to reach full write-off on at least 90% of tariff
lines.
Mexican visas are eliminated for tourists from Colombia
and Peru.
The academic mobility and student scholarships program
starts.
MSME competitiveness program is approved.
Saturday,
January 26,
2013
VI Summit, Santiago de
Chile (following the I
CELAC-EU Summit)
It was agreed to complete the process of trade
negotiations.
Friday, May
24, 2013
VII Summit, Cali,
Colombia
The negotiations on trade facilitation and customs
cooperation, technical barriers to trade are finished.
A working group on the cosmetics industry is established.
Monday,
February
10, 2014
VII Summit, Cartagena,
Colombia
The four presidents signed the Additional Protocol to the
Framework Agreement.
Thursday,
June 19,
2014
IX Summit, Punta Mita,
Nayarit, Mexico
The Mexican Stock Exchange (BMV) incorporates into
the Latin American Integrated Market (MILA).
A letter of intention for technical collaboration of the
OECD in the development of SMEs is subscribed.
5
See Article 8 of the Framework Agreement of the Pacific Alliance and Article 1.2 of the Trans-Pacific
Agreement.
4. 4
An agreement to prepare a work agenda is reached
among the Council of Ministers and observer countries.
Progress in the discussion of the Fund for Infrastructure
Development.
Wednesday,
July 01,
2015
X Summit, Paracas,
Peru
The four Presidents signed the First Protocol Amending
the Additional Protocol to the Framework Agreement,
which contains a chapter on regulatory improvement, an
annex to the chapter on technical barriers to trade in the
field of cosmetics, amendments and new provisions to
chapters on telecommunications and e-commerce.
It was agreed to begin construction of a common digital
agenda.
It was agreed to identify mechanisms that contribute to
improve the supply of medicines and access to quality
health services.
It was agreed to start the interoperability of Single
Windows for Foreign Trade (VUCEs) and strengthen
AEO programs.
It was agreed to establish a public-private agenda for the
development and promotion of innovation.
It was agreed to continue the development of the
structuring of the first vehicle of regional investment of the
Venture Capital Fund of the AP countries.
The Council of Ministers of Finance of the AP is created.
It was agreed to consolidate the MILA and the capital
market in the region.
It was agreed to promote the development of "AP
vehicles" that allow private investors to participate in
infrastructure projects in the region.
Monday,
July 20,
2015
The Framework Agreement of the Pacific Alliance enters
into force, once it has been ratified by the four
Congresses.
May 1st,
2016
The whole region The Additional Protocol (where all the specific rules are)
will enter into force, once it has been ratified by the four
Congresses.
Government structures have generated to date 23 technical groups on different
subjects.
Governmental Technical Groups
Cooperation institutional Affairs Promotion Agencies
Public Procurement SMEs Innovation
Services and Capital Tourism Education
Intellectual Property Expert Committee-CEAP Mining Development, Social
Responsibility and Sustainability
Movement of People and
Migratory Transit Facilitation
International Tax
Transparency
Trade Facilitation and Customs
Cooperation (subgroup)
Communication Strategy External Relations Regulatory Cooperation in
Cosmetics (subgroup)
Single Window for Foreign Trade,
VUCE (subgroup)
Consumer Protection
(subgroup)
Security (subgroup)
Gender Perspective Culture
5. 5
Private participation has been very intense and has accompanied the process
almost from the beginning. The Business Council of the Pacific Alliance (CEAP6)
was established on August 29, 2012, with a small group of entrepreneurs and
business representatives from the four countries participate in it, named by the
President of each nation. In addition to coordinating the participation of the various
chambers and companies depending on the issues and industries involved,
throughout the process of negotiating the agreement, CEAP has developed an
agenda of their own to express the issues of interest to the business sector and
seek to be validated by high levels of political decision and incorporated in the
works of government technical groups.
1.2. Foreign Trade of the 4 Countries
The four countries have opened their economies to free trade and foreign direct
investment steadily for more than a decade.
Total trade in goods and services in Chile and Mexico is equivalent to two thirds of
their GDPs, while in Peru is almost half of its GDP and Colombia reached 37.5 %
in 2014. Trade in services has a smaller but increasingly important share in the
four countries of the region. It ranges from 4.3 % of GDP in the case of Mexico, to
10 % for Chile.
Foreign direct investment is now an essential component in the development of the
countries of the region. Its level relative to GDP has consistently increased and is
high in Chile (8.5 %), Colombia (4.3 %) and Peru (3.9 %), while in Mexico,
according to the size of its economy, is still small (1.9%).
6
Consejo Empresarial de la Alianza del Pacífico.
6. 6
The total external trade of goods in the region is 44 % of total trade in Latin
America and 3 % of world trade7, reaching 1.1 trillion in 2014. In recent years
(2000-2014), intra-regional trade has grown more than the total trade of the
countries of the Pacific Alliance (11.9% vs 7.8%). However, it still represents a
small portion of their total trade.
The intra-regional trade was over 40 billion dollars in 2014. Mexico participated
with 32 %, Colombia with 26 %, Chile with 21 % and Peru with 20 %. Given the
relative size of the economies, this trade accounted for only 1.7 % of the total trade
in Mexico, 6.2 % in Chile, 9.5 % in Colombia, and 10.7 % in the case of Peru.
Overall, the intra-regional trade represented 3.7% of the total foreign trade of the
four countries.
7
Dimensions and economic effects of the Pacific Alliance; Dr. Rahel Aichele, IFO Center for International
Economics, Munich; March 5, 2015.
7. 7
Trade in Colombia 8
According to the Atlas of Economic Complexity, developed by the Center for
International Development at Harvard University,9 exports of goods to Colombia in
2014, amounting to 60.7 billion dollars, were concentrated in raw materials (oil,
coal and gold mainly) and agricultural commodities (coffee and bananas). Also
relevant are: packaged medicines, pharmaceuticals and beauty products; foods
and beverages; ferroalloys; polymers and plastics; textiles and clothing; paper
products; cars; and electrical and electronic equipment. The export of these
products focused on more than 50 % in four countries: United States, China, India
and Panama. Followed by Latin America and Europe as regions.
Meanwhile, Colombian imports, amounting to 58.5 billion dollars, are more than
60 % electronic products; vehicles, auto parts and aerospace; packaged medicines
and refined petroleum products. Also relevant are the products of iron, steel and
aluminum; medical and precision appliances, cereals; and polymers of ethylene in
primary forms. Imports come primarily, in more than 65 %, from the US, China,
Mexico, Brazil and Germany. By region, Europe, Latin America and Asia-Pacific
stand out.
Regarding technology-intensive trade, 80 % of Colombian exports are raw
materials, while 65 % of imports are products of medium and high technology.
8
In the following sections by country, foreign trade of each is described in more detail, including their
bilateral relationship with the other three countries of the Pacific Alliance. It is worth mentioning that if, for
example, exports from Colombia to Chile are presented, they will no longer be included then in the imports
of Chile from Colombia, so as to not duplicate.
9
http://atlas.cid.harvard.edu/
8. 8
Based on their
position in the value
chain, only 17.6 % of
exports and 55 % of
imports accounted for
intermediate goods.10
Of the 1,257 items into which the products that are traded internationally are
divided11, Colombia exports 500 to Mexico. Twenty-five products concentrate
68 % of the total value of Colombian exports amounting to 923 million dollars. The
main ones are: passenger cars, family and racing cars; coal; plastic products; and
palm oil.
10
The category of raw materials classified as technology-intensive does not necessarily coincide with the
category of raw materials classified as intermediate and finished products. One example: Apples are raw
materials from the technology-intensive point of view, and are final products (RTE) from the point of view of
their position in the value chain.
11
According to the 4-digit Harmonized System.
9. 9
Colombia exports 574 different products to Chile amounting to 1.1 billion dollars.
83 % of the total value of exports is in 25 products, while coal accounts for almost
47 %. Next in importance: crude oil, sugar, and medications in dosages for sale.
Colombia exports 615 products to Peru, with a similar structure to that of trade with
Chile, amounting to 1.2 billion dollars, except for coal, which in this case has a
much lower weight. The 25 higher value products account for 64 % of total
exports.
Colombia imports 496 different products from Chile, amounting to 929 million
dollars. The 25 higher value products account for 68 % of total imports. Among
them, the following stand out: apples and fresh fruit; copper products; wood, pulp
and paper products; fish; and wine.
Colombia buys from Mexico 803 different products, worth 5.2 billion dollars. The
25 higher value products account for 75% of total imports. Among them are motor
vehicles, electronics and appliances.
Colombia imports 541 different products from Peru, amounting to 1.2 billion dollars.
78% of the total import value is concentrated in 25 products. Namely: refined
petroleum products; copper products; plastic products; sugar and palm oil.
Trade in Chile
More than 50 % of the value of Chilean exports in 2014, which total is worth 74.3
billion dollars, was concentrated on products containing copper and gold. Also
relevant are fresh fruits and fish; wood, pulp and paper products; wine; and
packaged medicines. The destination for Chilean exports is more than 50 % the
Asia-Pacific region. China absorbs 27 % of the country's exports. Latin America,
Europe and the United States follow in importance.
Chile imports, worth 66.2 billion dollars, are concentrated in three product groups:
petroleum and byproducts; electronic products; automotive and auto parts. Also
relevant are imports of packaged medicines; iron, steel and aluminum products;
polymers and plastics; medical and precision instruments; and textiles and
clothing. Chilean imports come in about 30 % from Latin America. United States
provides 21 %, Asia-Pacific another 30 % (China alone, 22 %), and the rest is
largely of European origin.
10. 10
Chilean exports are low
and medium
technology-intensive in
more than 80%, which
largely correspond to
products based on
natural resources with
some degree of value
added. While imports
are more than 56 % of
medium and high
technological level.
It is noteworthy that
77.5 % of Chile's exports are intermediate goods, which is an indication that its
foreign trade is fully installed on the logic of value chains, and to a lesser extent in
the final consumer market.
Chile exports to Mexico 500 different products, worth 1.3 billion dollars. The 25
higher value products account for 75 % of total exports. Namely: copper products;
wood, pulp and paper products; fish and poultry; and fresh and prepared fruits.
Chile exports 673 different products to Peru, amounting to 1.2 billion US dollars.
56% of the total export value is concentrated in 25 products. Namely: Nitrogen
fertilizers; machinery for the mining industry; fresh and processed fruits; wood, pulp
and paper products.
11. 11
Chile buys from Mexico 722 different products, worth 2.4 billion dollars. The 25
higher value products account for 76 % of total imports. Namely: electronic
products; motor vehicles and auto parts; appliances; and beer.
Chile buys from Peru 740 different products, worth 1.5 billion dollars. 57% of the
total import value is concentrated in 25 products. Namely: products of copper and
other minerals, such as molybdenum and zinc; crude oil and gas; fishmeal and fish
oil; and sulfuric acid.
Trade of Peru
Peruvian exports in 2014, worth 40.1 billion dollars, were concentrated in about
50 % of products of copper and other minerals such as gold, zinc, and lead. Also
important were crude and refined oil and gas; fresh and processed foods; clothing;
and cleaning and beauty products. The destination of Peruvian exports was the
Asia-Pacific region in about 30 % (China alone, 19 %). North America (United
States and Canada) accounted for 21 % and other similar portion Latin America.
The rest went largely to European countries.
Imports of Peru in 2014, with a value equal to that of exports of 40.1 billion dollars,
focused on electronics; automotive and auto parts; crude oil and derivatives;
chemicals and pharmaceuticals; iron, steel and aluminum products; polymers of
ethylene, propylene and plastic products; textiles and clothing. The origin of
Peruvian imports was 21 % each, the United States and China. Latin America
accounted for more than 25 %, Asia-Pacific more than 10 %, and the rest largely
from Europe.
Peruvian exports are in 74 % of low and medium technology; while imports are
60 % medium and high technology goods.
12. 12
As in the case of Chile, it is important to highlight the fact that most of the exports
are located in
intermediate goods
(82 %), which
indicates that the
logic of the Peruvian
trade is also of value
chains and to a
lesser extent serving
the final consumer
markets.
Peru exports 481 different products to Mexico, amounting to 1.1 billion dollars.
One of them represents nearly 72 % of the value of total exports: liquefied natural
gas. Other relevant products are: copper products; wood, pulp and paper
products; plastic products; and food.
Peru buys from Mexico 675 different products, worth 1.9 billion dollars. The 25
higher value products account for 68 % of total imports. Namely: electronic
products; motor vehicles and auto parts; appliances; beauty and cleaning products.
Trade in Mexico
Mexican exports in 2014, worth 384 billion dollars, concentrated in more than 50 %
in electronics, motor vehicles and auto parts. Also important were equipment and
medical devices; iron, steel and aluminum products; crude oil; fruits and
vegetables; packaged medicines and beauty and cleaning products; beer; plastics;
textile and clothing. Exports from Mexico are concentrated in 71 % in the US, and
an additional 6 % in Canada. The rest is divided in equal proportions among Asia-
Pacific, Europe, and, in a lesser extent Latin America.
Meanwhile, Mexican imports, amounting to 365 billion dollars, are concentrated in
more than 30 % in electronics, 10 % in motor vehicles and auto parts; another
10 % in refined petroleum products and natural gas; and similar proportions of iron,
steel and aluminum products; chemicals and pharmaceuticals; and plastic
products. The origin of Mexican imports is 50 % from the US and 17 % from
13. 13
China. Asia-Pacific contributes another 13 %, Europe about 8 %; Latin America
5 % and Canada 3 %.
In contrast to the other
three member
countries of the Pacific
Alliance, nearly 80 %
of Mexican exports are
goods with medium or
high technology.
The fact that nearly 40 % of Mexican exports are final goods reflects the preferred
position of the country in the final links of the value chain. Similarly, the fact that
almost 80 % of imports are intermediate goods reflects the high degree of
integration of the production plant with global value chains.
Regional Trade
Foreign trade has traditionally been a lever for the development of countries.
Business strategies have varied: from import substitution that prevailed in Latin
America in the mid-twentieth century, to growth based on exports of Southeast
14. 14
Asian countries some decades ago, to the dominance of global value chains at
present. Today, more than 50% of non-oil world trade is in intermediate goods.12
It has never been clearer that foreign trade is the other side of the productive
activity of the country. That is why many analysts now point to the need, in view of
the Trans-Pacific Partnership (TPP), for our countries to refine their industrial
policies holistically, including financing, infrastructure, access to low-cost energy,
and regional policy, to foster increased local content in production supply chains.13
It is in this context that we should value the role that the political and economic
integration agreement of the Pacific Alliance plays, as a tool to better position and
insert member countries within the major trends in world development.
Interview with Jaime Serra Puche
Jaime Serra Puche was the Mexican head of the negotiating team of
the North American Free Trade Agreement (NAFTA), in his capacity
of the then Secretary of Commerce and Industrial Development. He
is currently president of the renown consulting firm SAI Derecho &
Economía, where he provided advisory services on economic and
trade integration.
The world is rearranging in macro-regional agreements such as the
Trans-Pacific Partnership, the Trans-Atlantic Trade and Investment
Partnership and the Regional Comprehensive Economic Partnership
(RCEP). What role can the Pacific Alliance play in this context?
The Pacific Alliance, involving Colombia, Chile, Mexico and Peru, is
a concept of economic integration that promotes, on the one hand, complementarities between
member countries and, secondly, the strengthening of competitive capabilities through collaboration
and exchanges of experience among our nations. In a context of trade agreements between
regions, the Pacific Alliance is a possibility of cooperation to face increasingly intense competition
from markets in Asia; in fact, three members of the Alliance are also signatories to the TPP.
Recognizing that the "natural" integration of Mexico has been with North America, and that this
process has been consolidated over more than 20 years, what are the conditions and rhythms to
make viable the inclusion of suppliers from the South American members countries of the Pacific
Alliance (Colombia, Chile and Peru), in global value chains with strong presence in Mexico, such as
the automotive and auto parts, aerospace, electronics, to name a few?
12
WTO statement.
13
See for example, "Mexico needs a comprehensive industrial policy" interview with the CEO of the Center
for Economic Studies of the Private Sector (CEESP), Luis Foncerrada, published in the January-March 2016
issue of the Comercio Exterior magazine of the Banco Nacional de Comercio Exterior (Bancomext).
15. 15
Indeed, Mexico has a natural vocation and proven integration with North America. In fact, such
integration has fostered the growth of a base of competitive suppliers in industries such as those
listed in the question, which the country has been integrated into global value chains that require
technological sophistication in varying degrees and types, as well as compliance with the highest
standards abroad. To the extent that Chile, Colombia and Peru increase their technological
capabilities and the complexity of their production structure, could facilitate competitive integration
with Mexico in global value chains with a special focus on North America, but with potential to
expand presence in other major markets.
How will the coexistence of trade agreements (bilateral FTAs, NAFTA, Pacific Alliance, Trans-
Pacific Partnership) operate in practice? What challenges/opportunities does this mean for the
countries of the Pacific Alliance?
The fundamental challenge is that in the implementation of the TPP and the Pacific Alliance does
not undermine the access preferences their countries had previously agreed in other trade
agreements. Regarding opportunities, the variety of treaties implies the potential to competitively
develop new markets, as already pointed out in previous answers.
Intra-regional trade has been a quite reduced portion of the total foreign trade of
the four countries. In addition, Latin America as a whole presents lower levels of
intra-industry trade than other regions of the world, such as Europe and Asia-
Pacific. Mexico, as part of the North American market has been structurally
integrated into the manufacturing apparatus of the United States, thus, the trade
between the two countries has grown exponentially, reducing –in the case of
Mexico– the trade with other regions of the world. Accordingly, Colombia, Chile,
and Peru have quickly inserted themselves in the Asian commercial circuit, with
China leading the way, as suppliers of raw materials, taking advantage of their
status as countries rich in natural resources.
Even though the
agreement of the Pacific
Alliance is stated counter
to the dominant
processes of member
countries, its relevance
is precisely that it traces
paths that open different
and viable
complementary options for commercial and productive strengthening of the four
countries. It also highlights the need for economic, governmental and private
players acting in a coordinated and cooperative manner, with explicit strategies
and goals for the short and longer term, to guide the market in the desired
direction.
16. 16
Faced with the large macro-regional agreements that are starting to arise14, the
Pacific Alliance can be the privileged space to boost regional productive
articulation of South America with North America15, with a view to transcontinental
trade with Asia and Europe.16 Mexico may
be the hinge between the two regions17,
based on the search for an efficient
integration of Colombia, Chile and Peru in
global, more technology - intensive value
chains, such as automotive, aerospace,
electronics and information and
communication technologies. Given the
size of annual imports and exports of
Mexico in these industries, it is considered feasible to find opportunities for
business interest to initiate the development of local suppliers in the three South
American countries.18
Another aspect of economic complementation is to combine skilled human and
scarce financial resources in the region to integrate research and development
networks with an explicit mandate to generate value-added alternatives to natural
resources (mining – copper, precious metals, other–; green energy –solar, wind
and geothermal–; and agricultural, fish and forestry products), combining
disciplines in the three areas that are leading global industrial transformation:
biological, digital and physical.19 It will require finding, through dialogue, a proper
balance between cooperation and competition, so that economic players have
incentives to work together. In addition, the regional exchange of experience,
dissemination of success stories and best practices should be encouraged, as a
14
The Trans-Pacific Partnership (TPP), already approved by Heads of State and being ratified by the
Congresses of each country; the Trans-Atlantic Trade and Investment Partnership (TTIP) between the United
States and the European Union, which is under negotiation; as well as the Regional Comprehensive
Economic Partnership (RCEP), among the 10 member countries of the Association of Southeast Asian
Nations (ASEAN), and six regional partners: China, India, Japan, South Korea, Australia and New Zealand.
15
Central America has already begun this process of articulation.
16
The four countries of the Pacific Alliance have free trade agreements with the United States and the
European Union.
17
Luis de la Calle, founder and CEO of the consulting firm De la Calle, Madrazo and Mancera, and
independent director of the Federal Electricity Commission in Mexico, highlights the geopolitical
comparative advantage of Mexico as the only big emerging country with access to a network of trade
agreements on both sides of the oceans, as well as in north and south America. See the interview given to
the magazine Comercio Exterior, January-March 2016.
18
A potential segment is the one called outsourcing information technology, particularly the development of
software industry in which Mexico is already fourth in the world after India, China and the Philippines.
19
See the description given by Klaus Schwab of this ongoing transformation: The Fourth Industrial
Revolution, World Economic Forum, January 2016.
17. 17
way to learn faster from each other. The Pacific Alliance platform can be useful for
this purpose. There are, in fact, ongoing processes which may be reinforced:
• the articulation of regional production chains in the forestry industry, from
the production of wood and pulp in forest plantations and native forests to
produce boards, particleboard, furniture, paper and books that is being
developed under the leadership of Chilean companies20
• the development of farms and clusters of non-conventional renewable
energy, particularly wind and solar21
• the consolidation of an international supply of top-quality fruits and
vegetables throughout the year, based on the supply of producers in the
region, coordinated in common marketing schemes; and the search for
distinctive foods with higher added value22
• the use of copper powders in the treatment of wood for furniture of hospitals
and health centers, taking advantage of its antimicrobial properties23.
For the size of its domestic market and its proximity to the United States, the value
chains in Mexico are located in the final links; while the relative abundance of
natural resources has positioned the three South American countries of the Pacific
Alliance closer to the initial links of the value chain. The challenge now is for
intermediate goods exported from Colombia, Chile and Peru to Mexico to have
increased local value added and technology intensity, while Mexico manages to
consolidate itself as a functional platform for diversified exports to major trading
regions of the world: North America, Europe and Asia-Pacific.
1.3. Demography
The population growth rate in member countries of the Pacific Alliance has been
steadily decreasing over the past three decades, and will continue so. The current
20
One of them is a good example of the recent dynamism of businesses called "multi-Latin" and the regional
distribution of the value chain. It has 197,000 hectares of forest plantations in four Latin American
countries; 10 industrial plants in five countries in the region, and 340 shops in eleven countries. It is a leader
in the production and marketing of fiberboard and particleboard for furniture and interior architecture in
Latin America. Chile's forests produce sawn wood and waste, which are exported to Mexico, where MDF
(medium density fiberboard) is produced, and is completing a new plant for export to the United States. In
addition to the network of distributors that are largely start-ups of small business franchisees, the company
is managing strategic alliances with furniture companies to design furniture for both local and export
markets (Mexican-style furniture to the Hispanic community in the US, for example).
21
Note the use of copper in solar panels as a high-potential way to diversify.
22
Such as the production of frozen foods, reflecting the rich regional cuisine from recipes from local chefs of
international recognition.
23
Interview with Franz Meiners, director of Arauco in Mexico.
18. 18
population is about 220 million people and is expected to grow further just over 40
million (18%) for 2035.
For the expected evolution of the age structure of the population, the four countries
will record a similar behavior to the income group they belong24, in the next 20
years, as regards the proportion of the population of working age (15 to 65 years
old) with respect to the total population. Thus, Chile, which is classified as the
high-income group, will see a reduction of almost 6 percentage points in this
indicator during the period 2015-2035; while the other three countries, will record a
maximum increase of nearly two and a half percentage points within the same
period, and then begin to decline.25
24
World Bank classifies countries into four groups, depending on the level of per capita income: (I) low-
income, (ii) lower-middle income, (iii) upper-middle income, and (iv) higher income. Chile belongs to the
fourth group, high income, while the other three countries are in the upper-middle income group.
25
SOURCE: Macroeconomic model developed by the Pardee Center for International Futures of the
University of Denver.
19. 19
In a closer look,
the dependency
ratio26 can be
decomposed into
two segments to
better understand
their behavior.
The proportion of
children and
young people
under 15 years is
reduced
significantly in the
region during the
period 2015-2035, reducing the pressure on spending on education, health and
other services for this segment. But, on the other hand, the population over 65
years grows significantly with respect to the population of working age, increasing
the need for spending related to this other segment services.
SOURCE: Macroeconomic model developed by the Pardee Center for International Futures of the University
of Denver.
In fact, the population over 65 years is almost doubled in the period within the
region, with Chile in the lead with 19.1% from the total population.27
1.4. Economic growth
26
Which is the relationship between the population not of working age (which has less than 15 years and
has more than 65) and the population of working age (between 15 and 65 years).
27
In Colombia, it will reach 13.6%, in Mexico 12.9%, and 11.9% in Peru.
15-65
20. 20
The annual growth rate of the countries of the Pacific Alliance in the last 35 years
reflects the volatility
of commodity
markets. For none
of the four countries
rates of 5% or more
so far this century
have been strange.
But the fact is that
the average growth
in the last twenty
years (1995-2015)
has not been
entirely satisfactory:
4.6% for Peru,
4.1% for Chile,
3.4% for Colombia,
and 2.8% for Mexico.
The projected growth for the period 2016-2035 in a "business as usual" scenario
closely follows the historical pattern: Peru at 4.3%, Chile at 3.3%, Mexico at 3.2%
and Colombia at 2.9%. Overall, the region would grow at an annual average of
3.3%.
Given this baseline scenario, the four countries would fall behind with regard to
their peer groups of income per capita levels; Chile compared to the countries of
the high income group, and the other three countries in relation to the group of
countries with medium-high income.
21. 21
In order to keep pace with their groups of per capita income, the member countries
of the Pacific Alliance would have to grow at a regional average rate of 5.2% per
annum, with which the GDP would nearly threefold, from US$ 2.1 billion to US$ 6
billion in 2035. This rate is equivalent to a growth rate of two percentage points
higher than estimated in the baseline scenario, thus: Peru would grow at 6.2%,
Chile at 5.2%, Mexico at 5.1% and Colombia at 4.9%.
This is the economic dimension of ambition proposed here. In order to achieve it, it
would be necessary to boost the productivity of the key activities in each country,
through innovation and disruptive actions, and at the same time, boost productivity
growth through the integration of the four countries.
Only in this way the four countries can escape the "middle income trap"28 in which
they are already (Mexico and Chile) or in which they will inevitably fall due to
economic slowdown that is foreseen (Colombia and Peru). It is worth mentioning
that reaching the required growth, as it has been analyzed by the PwC Escape
Index since February 2014 for major emerging economies around the world,
requires a holistic view that includes the following five aspects:
• Stability and economic growth
• Cohesion and social progress
• Communication technologies
• Political, legal and regulatory institutions
• Environmental sustainability.
1.5. Sustainable development
In line with the holistic vision, the ambition of the Pacific Alliance also has a social
dimension and another of environmental sustainability. Along with the economic
dimension, the three make up the aspiration of sustainable development in the
region.
28
The middle income trap occurs in emerging countries which after a period of accelerated growth stagnate
because they have not developed the necessary and sufficient conditions for sustained growth, particularly
of institutional character. See the discussion of PwC (2015), The World in 2050, and in particular the section
Escaping the middle income trap - the critical role of Institutions.
22. 22
The human development index measures the social dimension in three aspects:
long and healthy life, knowledge and a decent standard of living.29 The ambition is
to achieve region-wide stratum of very high human development (more than
0.800), in which Chile is already.
In order assess the aspect related to long and healthy life, indicators of life
expectancy at birth are used; knowledge is measured through schooling indicators;
and the standard of living is tied to income indicators.
It should be noted, however, that by adjusting the human development index by a
factor of inequality, all countries fall to a lower stratum: Colombia goes from high
development to low development (two levels less), Chile goes from very high
development to medium development (two levels less), Mexico and Peru go from
high development to medium development (one level less). In the case of the
United States, South Korea, Spain, and Argentina, all of them go from very high
development to high development (one level less).
29
See Annex for a more detailed explanation of the index and what it includes. The methodology was
developed by the United Nations Program for Development (UNDP) 25 years ago, and every year reports are
formulated and indicators by country and region are estimated.
23. 23
Raising the standard of living of the population will require action on several fronts.
One, certainly, is poverty that, in the baseline scenario, will continue to affect a
significant portion of the inhabitants of the region, particularly in Colombia and
Mexico.
In part, low income are due to the inability of the economic apparatus to generate a
sufficient number of well-paying formal jobs. Although on a downward trend,
informal employment will remain a critical factor in the baseline scenario, which
assumes a similar performance to historic, without major changes. The projection
suggests that it will remain at levels of 35%-45% in Colombia, Mexico and Peru.
Only Chile appears with a level close to 10%.
24. 24
In chapter regarding the analysis of key sectors, education and health are included,
which are key elements of social development. The current challenges and
opportunities for public and private action will be reviewed.
Meanwhile, on environmental sustainability, the commitment is to ensure that the
four member countries of the Pacific Alliance achieve the highest quartile of the
index of environmental performance prepared by the universities of Yale and
Columbia, with the collaboration of the World Economic Forum, and that is updated
every two years.30
In Latin America, only Chile has achieved sufficient rating (70 of 100 points) to be
located in the highest quartile of the 178 countries assessed from the point of view
of its environmental performance. Mexico and Colombia would be placed in the
third quartile, while Peru would be in the second.
30
See http://epi.yale.edu. The index has been developed by the Yale Center for Environmental Law and
Policy (YCELP) and the Center for International Earth Science Information Network (CIESIN), with the
collaboration of the World Economic Forum.
25. 25
The environmental performance index is calculated using 20 indicators that cover
two main areas: environmental health (reducing stress on human health) and
vitality of ecosystems (protecting ecosystems and natural resources). For the
countries of the Pacific Alliance preservation of natural resources is a key issue.
For example, regarding the change in forest cover, Chile stands out for its good
management, and ranks first, with 15 other countries, within a universe of 137
nations. Meanwhile, Colombia, Mexico and Peru are ranked between 17 and 28,
which seem acceptable in comparative terms, but nevertheless, when analyzing
their ratings (19.9 to 32.5 out of 100), they reflect poor management.
As for the over-exploitation of stocks of fish, Peru occupies the best position (13
out of 134 countries), but again all ratings reflect a very poor performance (9.5 to
23.5 out of 100).
The second fishing indicator refers to pressure on coastal fisheries. Colombia
ranks 20 among 134 countries, with a regular score (55.4 out of 100); while the rest
are lower in the ranking and reflects poor management (25.5 to 36 out of 100).