Latin American Trade Coalitions Look Ahead to Post-COVID Future

This article was originally published in IISD's Trade and Sustainability Review, Volume 1, Issue 3. 

Across Latin America, the various country groupings that govern economic relations on the continent and abroad are looking ahead to cementing new trade relationships and deepening existing arrangements—especially as several of these regional coalitions reach some milestone moments. These efforts come as the region continues to grapple with the economic and health fallout from COVID-19, compounded by sluggish vaccination rates in many countries and painfully high death tolls and hospitalization rates.

According to the International Monetary Fund, Latin America’s contraction in terms of economic growth was the worst seen across world regions, at 7% last year. This year’s growth rates also look relatively bleak compared to those of other countries. The role trade plays in the recovery and how that happens will be watched closely in the months to come.

A January report by the United Nations Economic Commission for Latin America and the Caribbean says regional exports and imports suffered severe losses last year, at 13% and 20%, respectively.

A series of regional trade coalitions have emerged over the past several decades in South and Central America. Some are relatively new, such as the Pacific Alliance, which launched in 2011 and counts Chile, Colombia, Mexico, and Peru as full members. Others have a storied history, with Argentina, Brazil, Paraguay, and Uruguay now counting 30 years as members of the Southern Common Market, known more commonly as Mercosur in Spanish and Mercosul in Portuguese. The Comunidad Andina, or Andean Community, brings together Bolivia, Colombia, Ecuador, and Peru.

“Across Latin America, the various country groupings that govern economic relations on the continent and abroad are looking ahead to cementing new trade relationships and deepening existing arrangements.”

Many of these initiatives have looked abroad to build region-to-region or region-to-country ties. This article provides a brief overview of recent developments in these areas and current indications of where they will go next.

Given the range of coalitions in the region, this article focuses primarily on Mercosur and the Pacific Alliance, with a brief section on the Andean Community, while noting that the Caribbean Community, the Organization of American States, and other groupings are important areas for future updates.

Signs of an EU–Mercosur Revival?

One of the major integration processes involving Latin America has been the long-running effort to clinch an association agreement (which includes a trade chapter) with the European Union.

These efforts kicked off in 2000, only to face several setbacks and periods of prolonged delays. Although the two regional coalitions announced that they had reached an agreement in principle in 2019, efforts to finalize the legal texts and move toward signature and ratification have since advanced little, while new hurdles have arisen.

Lately, the spectre of the EU–Mercosur trade talks has re-emerged, even as the potential entry-into-force of the agreement remains a distant prospect given internal differences among EU member states and with the European Commission over how to proceed and when. EU officials tout the agreement as a potential game-changer for the European market once these steps are complete.

“We are the first partner to conclude an agreement with Mercosur,” EU Executive Vice-President Valdis Dombrovskis said in late April. “This gives us substantial first-mover advantage in the fifth-biggest economy outside the EU.”

Dombrovskis noted, however, that while the agreement’s chapter on trade and sustainable development is “the most advanced” that Brussels has developed with an external partner, the EU will need to see “meaningful engagement” from Mercosur on climate and environmental issues to show that it can put its commitments into practice. Doing so would be essential for the ratification process to move ahead in Europe, he added.

The Mercosur countries are open to adding an “instrument” that would cover topics such as deforestation in further depth, Dombrovskis said, with talks on what this instrument will look like underway as of this past December.

The need for securing better assurances in the accord against deforestation of the Amazon rainforest has been a major ask by some EU member states. For example, France says it will not approve any such agreement with the Mercosur bloc without them.

French officials told the German broadcaster Deutsche Welle in May 2021 that other EU member states, such as Austria, Belgium, and the Netherlands, are of a similar view, given the impact that the destruction of the rainforest would have on climate change and biodiversity. According to the Deutsche Welle report, Paris has also called for improved supply chain traceability, especially with plant and animal products, to make it easier to ensure that Europe-bound imports from the Mercosur countries comply with food safety and health requirements.

“The need for securing better assurances in the [Mercosur] accord against deforestation of the Amazon rainforest has been a major ask by some EU member states.”

Other EU member states, such as Spain, have asked the European Commission to press ahead with the Mercosur accord.

Among the other rumoured sticking points in the EU–Mercosur talks are the long-standing concerns over agricultural competitiveness, given the importance of the farm sectors on both sides of the Atlantic. Brazilian President Jair Bolsonaro was recently quoted as criticizing France and other EU member states for blocking progress on the accord out of concern for what a glut of raw material imports from the Southern zone would mean for European competitors.

Aside from the EU process, the Mercosur bloc is also negotiating trade deals with Canada, Singapore, and South Korea.

After Its First Decade, Pacific Alliance Takes Stock of Progress

The neighbouring Pacific Alliance celebrated its 10-year anniversary in May, giving leaders an opportunity to take stock of their efforts and what might come next in the initiative.

When Chile, Colombia, Mexico, and Peru set up the alliance in 2011, they agreed to focus on “free movement of goods, services, capital, and people,” along with tackling socioeconomic inequality, improving social inclusion, and fostering a platform for cooperation among their countries (plus other objectives).

Three years later, they began working with the Mercosur coalition to connect their two groupings, despite their varying economic models and integration approaches. They have had a related “plan of action” in place since 2018. In parallel, they sought to integrate other countries from different world regions into their alliance through various types of membership, namely associate and observer members.

Associate members would have formal, binding trade agreements with the bloc. Observer members would be able to take part in alliance meetings upon invitation and, if they have trade agreements with at least two of the four alliance members, can request to negotiate associate status. The number of observers currently stands at nearly 60 countries from a range of world regions.

Negotiations to incorporate four additional countries as associate members of the Pacific Alliance have been underway since June 2017 and have not yet concluded. Those countries negotiating associate member status are Australia, Canada, New Zealand, and Singapore, with the latter slated to become the first full-fledged associate member after clinching an “agreement in principle” earlier this year.

The move to bring on these associate members would expand the alliance’s regional reach, as well as its subject matter coverage. These associate member agreements, once completed, will build on the existing protocol for the alliance’s full, founding members. They would cover 24 areas, spanning from rules of origin, gender, and small and medium-sized enterprises to environment, labour, and intellectual property rights.

“Negotiations to incorporate four additional countries as associate members of the Pacific Alliance have been underway since June 2017 and have not yet concluded. Those countries negotiating associate member status are Australia, Canada, New Zealand, and Singapore, with the latter slated to become the first full-fledged associate member.”

At a presidential summit held virtually in May, leaders from Chile, Colombia, Mexico, and Peru set out their respective aspirations for the alliance over the coming years, based on the achievements to date. Among these were deeper ties with the neighbouring Mercosur coalition and fostering greater trade flows within their own grouping. Other issues they raised were the role of the circular economy, as well as increased participation of women and young people in trade and employment. The role of the digital economy in boosting trade and growth was also identified as a priority.

Andean Community Update

Unlike the Pacific Alliance, the Andean Community has a much longer history, with the process to develop this type of coalition dating back to the late 1960s and cementing itself in the late 1990s. Notably, the members of the Andean Community overlap with the two above-mentioned groups. Colombia and Peru are also Pacific Alliance members, while Bolivia has engaged in a long process toward eventually joining Mercosur. Three of the Andean Community’s members have clinched a trade deal with Mercosur—with the notable exception being Peru—that dates back to 2004.

Among the most recent developments from the Andean Community was news that it had endorsed a new migration statute that would make it easier for tourist travel across the bloc, along with facilitating “temporary residence” of citizens from Andean Community countries in other countries from that coalition. It also clarifies the pathway to permanent residence after that two-year temporary residency concludes. Andean Community officials have welcomed the move as a vital step toward cementing the regional partnership.

Sofia Baliño is the Communications and Editorial Manager for IISD’s Economic Law and Policy program.