Meet Latin America's Serious Side: The Pacific Alliance

May 28, 2013— -- News about Latin America is often dominated by politicians who make bombastic speeches about U.S. imperialism and promise to bring about radical changes in the continent without really saying how they'll do it.

But Latin America's more practical side (on the Pacific coast) is finally getting its due.

I've been following the Pacific Alliance, a new trade bloc organized by Mexico, Colombia, Peru and Chile, since its inception two years ago and have always thought it was pretty cool.

But I was surprised by the buzz surrounding the Alliance's meeting last week in Colombia.

The Alliance currently only involves four countries but nine showed up at the meeting as observers including, Canada, Spain, Australia, New Zealand, Uruguay, Japan, Guatemala, Costa Rica and Panama.

These countries and investors from outside of Latin America are attracted by the positive business climate among Alliance members—they occupy four of the top-five spots in the World Bank's Doing Business in Latin America ranking—and encouraged by the fact that the bloc is serious. It is focused on trade, investment and immigration rather than politics and ideology.

"We've had enough of ideology, slogans and trying to find scapegoats," Costa Rican President Laura Chinchilla said at the meeting, which was held in the sunny city of Cali, Colombia. "We have to assume our responsibility and complete the work that remains to be done in terms of development."

Such talk is music to investors' ears and represents a big contrast to countries like Venezuela, Argentina and even Brazil on Latin America's Atlantic side that are more ideological and nationalistic.

The goal of the alliance is to create a free-trade corridor of all countries in the Americas with a Pacific coast. The hope is that dropping barriers on labor, finance and trade will help the Alliance become a hub for commerce with Asia.

Now, Latin America has a number of regional blocs—UNASUR, MERCOSUR, ALADI and CELAC to name a few—that have not lived up to the hype because they've often become bogged down bureaucracy. The Pacific Alliance is different. According to The Economist, much of the excitement is because the Pacific Alliance is a hard-nosed business deal.

"It is based on [economic] affinity, rather than proximity," José Antonio García Belaunde, a former Peruvian foreign minister, told The Economist. "It's integration with those who are capable of doing it."

So what has happened so far? Quite a bit actually for just two years of action:

- Freer travel. In order to facilitate travel between the countries Mexico has dropped visa requirements for Colombians and Peruvians.

- Freer trade. Last week the four Alliance countries signed an agreement removing tariffs on 90% of their merchandise trade.

- Bigger stock market. The stock markets of Chile, Peru and Colombia have merged to create Mila, or the Mercado Integrado Latinoamericano. The entry of Mexico which is expected in the next twelve months would make the Mila the largest stock exchange in the region, surpassing Brazil's Bovespa.

- Joint embassies. The four Alliance countries are opening joint embassies and trade delegations in Africa and have plans to do the same in some Asian countries.

That's all cool, but what's the real big deal?

Last year,I gave an example of how it might work:

Chile has the climate and infrastructure to make great wine but let's say the Mexicans make the best fertilizer, the Colombians develop a more efficient way of making glass and the Peruvians have found a way to design and produce the best labels and corks. If Chilean winemakers buy the Mexican fertilizer and link up with Colombia's glass makers and Peru's label makers, together, they can produce a better, less expensive bottle of wine. Alliances like this, which encourage countries or states to develop more efficient value chains, are Latin America's best and only chance of competing in Asia.

Finally some Latin American countries are realizing that they can no longer go it alone and have a lot to gain from working together.