This week, Panama moved one step closer to joining the ever-growing Pacific Alliance by officially beginning the bilateral Free Trade Agreement with Mexico, signed in 2014. The two countries already do significant trade with each other, and this is a big move that will help grow both economies, and give Panama a strategic place in regional trade and commerce. Mexico is one of the strongest economies in Latin America, and has major export potential for Panama and the entire region. Mexico currently trades over $1 billion annually with Panama, with most of that number coming form exports to the isthmus.
How does Panama benefit?
Panama will see small benefits from this Free Trade Agreement immediately, and even bigger ones in the next few months and years. With another Free Trade Agreement under its belt, Panama is positioning itself to increase exports as well as the flow of much-needed imports from a production economy such as Mexico’s. Eliminating import tariffs will help lower the market price of Mexico’s exported goods, keeping them in line with imports from other FTA countries such as China, and the United States. Some of Mexico’s biggest exports to Panama include copper, aluminum, steel, automobiles, auto parts, paints, cosmetics, and perfumes.
One of the biggest benefits to this newly enacted Free Trade Agreement, is the one that Panama’s the most excited about: They may now be able to join the Pacific Alliance trade group, something the country has been eager to do for quite some time now.
The importance of membership in the Pacific Alliance
The Pacific Alliance is a major Latin American trade bloc that was formed in 2011, and currently consists of four countries: Mexico, Chile, Peru, and Colombia. The group has been extremely proactive in building trade relationships in the short time of their existence creating a common market, and driving regional growth through mutual goals and diplomatic cooperation. The strength of this common market is continuing to grow, and will seek new members to increase trade, and reduce ancillary costs to member nations. Here’s the market explained, according to Wikipedia
The Mercado Integrado Latinoamericano (MILA) originally integrated the stock markets of Colombia (Colombia Stock Exchange), Chile (Santiago Stock Exchange), and Peru (Lima Stock Exchange), and is seen as a foundation for the Alliance’s economic integration. These three stock markets began their integration in November 2010; this made it Latin America’s largest market according to number of issuers, the second by market capitalization, and the third by turnover.
Panama’s role in the Pacific Alliance
As you know, Panama has had unprecedented economic growth over the past five years, and great trade relationships with regional partners. By joining the Pacific Alliance, they will be able to act as a power economy in the world, not only Latin America, by using the common shared trade market to promote global exports and drive business back into the country. The Pacific Alliance can also benefit from Panama as a member, as major global financial institutions already run through the country, and it has the world’s most important see trade route, the Panama Canal. While it’s not a guarantee that Panama will be ushered into the Pacific Alliance, all signs do point that way. The country now has FTAs with each of the member countries, and could be a member by the end of the year.