When Blocs Collide

BUENOS AIRES – Latin America’s two largest economic groupings – the Pacific Alliance and the Southern Common Market (Mercosur) – are pursuing further integration into the global economy in very different ways. Whether they succeed will depend not only on their individual strategies, but on whether these strategies complement each other. Only if they do can the region become a significant global player.

The Pacific Alliance – comprising Chile, Colombia, Mexico, and Peru – represents nearly 40% of Latin America’s GDP, having grown at an average annual rate of 2.9% since 2000. Mercosur’s five economies – Argentina, Brazil, Paraguay, Uruguay, and Venezuela – account for roughly 50% of the region’s GDP, and grew by an average of roughly 3.4% per year during the same period, although growth has slowed since 2010.

But these economies’ full potential has yet to be unleashed. While Mercosur has been relatively successful in achieving commercial integration, with intra-bloc trade accounting for 15% of member countries’ total trade (and shares larger than 25% for Argentina, Paraguay, and Uruguay), it has failed to deepen the integration of markets for goods and services.

Moreover, though trade within the Pacific Alliance stands at only 4%, member countries’ leaders were not particularly ambitious at their summit in May. While they agreed to eliminate in the short run all tariffs for 90% of traded goods, the group has yet to make progress toward creating common rules on “accumulation of origin” (whereby member countries treat the commodities that they import from each other as their own).