September 2019: India and the Pacific Alliance – The Future Prospects

The Pacific Alliance (PA) is a Latin American trade bloc, formed by Chile, Colombia, Mexico and Peru, which all border the Pacific Ocean. These countries have come together to form an area of integration with the purpose of ensuring complete freedom in the movement of goods, services, capital, and people.

Together the four countries have a combined population of 225 million people per capita GDP of $18,921 and account for 38 percent of the region’s foreign direct investment.

India’s trade with the PA, which accounts for more than 50% of its trade with Latin America, has been growing rapidly over the past few years and the expanded Preferential Trade Agreement signed by Chile and India in 2016 has come into force from May 2017. Peru and India have agreed to start negotiations for a free/preferential trade agreement, and this should also help in boosting the trade with the region.

Chile, riding on Pacific Alliance (PA) Presidency, hopes to emerge as a key partner for India in the Indo-Pacific region amid efforts by the Alliance to explore cooperation beyond Latin America to thwart trade protectionism.

President Ram Nath Kovind visited Chile earlier this April and the two sides signed three MoUs in the fields of mining, culture, and disability. Chile is the sixth-largest trading partner of India in the Latin American region. The bilateral trade between the two nations registered an impressive increase of 50 percent in 2017-18, to reach $ 2.8 billion. The two also has a Preferential Trade Agreement or PTA.

Negotiations with Chile reveal the mutual intention to deepen the limited scope of the trade agreements of the past. Under a PTA signed in 2006, India had offered fixed preferences ranging from 10% to 50% on 178 tariff lines, and Chile offered a similar range of tariff preferences on 296 items. However, under the terms of a new agreement that came into effect in 2017 after a five-year-long negotiation, the coverage has been expanded to 2,099 tariff lines with preferences in the range of 30–100% in Chile and to 1 100 items with duties 10–100% lower than the multilateral import duties in India. The new negotiation also upgraded sanitary/phytosanitary and technical standards and modernized the rules of origin.

In addition, Mexico has overtaken Brazil as the top trading partner of India in Latin America for the first time in 2018-19. 

India’s trade with the Pacific Alliance in 2018-19 is given below:

At the just concluded PA Summit in Peru, the four members of the Alliance (Mexico, Columbia, Chile and Peru) decided to safeguard globalisation. The Alliance is looking for associate members around the world. Australia, New Zealand, South Korea and Singapore are all candidates, as is Canada and, closer to home, Ecuador. India is an observer to the alliance.

Since countries like Mexico and Colombia are not members of the OPEC, oil supplies from these countries lessen India’s dependence on this group as well.

Even though bilateral trade is still in a nascent stage, the region remains a strategic source of natural resources for India, while Indian firms supply sophisticated manufacturing products and, most importantly, serve as a strategic partner for the development of a modern services sector in Pacific Alliance.

Expanding the web of trade agreements between the two regions would help to abate tariffs and reduce the cumbersome stock of non-tariff barriers. A new set of trade rules governing market access would allow exporters to diversify sales in new markets that are bound to grow due to the emergence of a vibrant middle class in both economies.