Mercosur Continues Cozying to Pacific Alliance

Chilean President Michelle Bachelet and Argentina President Mauricio Macri announced in mid-December 2016 that work toward an agreement to further liberalize bilateral trade would commence in the first quarter of 2017. The announcement is consistent with recent indications that Mercosur, to which Argentina is party, is eager to more actively engage the Pacific Alliance, of which Chile, Mexico, Colombia and Peru are member states.

A Chilean International Economic Relations General Directorate (DIRECON) press release indicates that negotiations to deepen Argentina-Chile trade ties will cover trade facilitation, government procurement, regulatory aspects, competition policy, cross-border investment and trade in services, e-commerce, and small- and medium-sized enterprises (SME). The agreement will also reportedly include a chapter on cooperation, to cover such topics as environment, global value chains, and gender.

Economic Complementation Agreement (ACE) No. 35 between Mercosur member states and Chile, in effect since 1996, currently governs Argentina-Chile trade relations. Although ACE No. 35 provides WTO-plus preferential tariff treatment for goods traded between the parties, in general, the Agreement merely affirms WTO commitments in such areas as trade remedies (e.g., antidumping and countervailing duties (AD/CVD) and safeguards), customs valuation, technical barriers to trade (TBT) and sanitary and phytosanitary (SPS) measures, export incentives, cross-border trade in services, and intellectual property; additionally, the Agreement simply reaffirms the validity of extant bilateral investment promotion and protection treaties.

ACE No. 35 took effect in 1996; as such, many of the provisions thereunder now appear dated and not reflective of concepts found in more modern trade agreements, a situation Presidents Macri and Bachelet appear eager to revert. For example, future Chile-Argentina negotiations on trade facilitation are likely to reflect the December 2013 WTO Trade Facilitation Agreement (see: Bali Package), which includes provisions for expediting the movement, release and clearance of goods, including goods in transit. Also, whereas ACE No. 35 either does not encompass or includes merely hortatory language on government procurement, competition policy, e-commerce and SME, these constitute subject matter areas in which Chile has undertaken binding—and often WTO-plus—commitments in more recent free trade agreements (FTAs), e.g., US-Chile FTA, Trans-Pacific Partnership (TPP) and Pacific Alliance. The trade skepticism that reigned supreme until relatively recently in Argentina and Brazil, a topic this blog discusses in a previous entry, made difficult forward movement within Mercosur trade policy on these modern, 21st-century trade issues; that Argentina now appears keen to make such forward movement is consistent with the free trade-friendly tone President Mauricio Macri has set since he took office in December 2015, following the trade-skeptic Cristina Fernández de Kirchner Administration.

Although Mercosur rules bind Argentina to negotiate certain trade agreements en bloc with its fellow Mercosur member states, this announcement on a possible future agreement to deepen Argentina-Chile bilateral trade ties does not appear to run afoul of these rules. Mercosur Resolution No. 32/00 prohibits an individual Mercosur member state from negotiating with third countries bilateral agreements that afford preferential tariff treatment; the future Argentina-Chile agreement to which the DIRECON press release refers does not appear to seek further preferential tariff treatment between the two countries but, rather, improve bilateral economic relations by addressing non-tariff-related matters, e.g., trade facilitation, government procurement, regulatory aspects, competition policy, cross-border investment and trade in services, e-commerce, and SME. Additionally, there is precedent for an individual Mercosur member state negotiating an agreement of this nature bilaterally with Chile (see: Uruguay-Chile FTA).

Argentina is an observer state to the Pacific Alliance, a regional integration initiative to promote the free movement of goods, services, capital and people across Mexico, Colombia, Peru and Chile, often regarded as among the most trade-friendly countries in the Western Hemisphere over the past decade. While observer status does not afford Argentina preferential market access under the Pacific Alliance, that Chile holds the Alliance’s Pro Tempore Presidency and Argentina that of Mercosur has stoked optimism of meaningful convergence between the two trading blocs. While it remains unclear to what extent Argentina and the greater Mercosur will converge with the Pacific Alliance over the long term, Presidents Macri and Bachelet have agreed to take steps toward this end over the short term by studying the impact of “cumulation”, a concept that essentially widens the definition of originating goods eligible for preferential tariff treatment under a trade agreement, a move that would certainly deepen supply chain linkages between Pacific Alliance and Mercosur member states without any modification to tariffs applied to goods traded amongst them.


One thought on “Mercosur Continues Cozying to Pacific Alliance

  1. Pingback: Peru-Honduras FTA Enters into Force, Falls Short on Free Movement of People | Latin Trade Blog

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