Trade pacts: Latin America’s new faultline

Article source
Financial Times

Five centuries after Pope Alexander VI ruled on how Spain and Portugal should divide up the New World, a new split is emerging between trading nations facing the Pacific and Atlantic coasts of Latin America.

Just as the 1494 Treaty of Tordesillas determined centuries of colonial history, so the faultline between today’s trade pacts representing two culturally and politically diverse groups of nations, could determine the shape of Latin America’s next century.

While newcomer the Pacific Alliance (whose members are Peru, Chile, Colombia and Mexico) bills itself as a “twenty-first century trade pact” modelled along the lines of the EU and committed to free movement of people, goods and services, the older and larger Mercosur follows a more traditional model of state-negotiated trade.

Mercosur, whose full members are Argentina, Brazil, Paraguay, Uruguay and Venezuela, has sputtered since it was established in 1991, in part because of traditional rivalry between founder members Brazil and Argentina.

“The dynamics between the leaders of the Mercosur countries matters. It’s a political bloc,” said a well-placed diplomatic source. By contrast, this observer added: “The Pacific Alliance was invented with a different purpose and has been marketing itself as something very different to Mercosur.”

There’s significant divergence, too, between the growth rates of the two groups. While in 2014 Pacific Alliance member nations enjoyed average gross domestic product growth of 2.4 per cent, their Mercosur counterparts eked out growth of just 0.3 per cent, dragging down the regional average to 1.3 per cent, as the graphic shows.

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