Heads of state from South America's Pacific Alliance, comprised of Chile, Colombia, Mexico, and Peru, signed a deal on Monday that will scrap nine-tenths of tariffs on goods and services traded between them.
The Pacific Alliance, created in 2012, aims to integrate free markets in trade, energy and infrastructure, and bolster ties with Asia, a key trading partner.
The trade protocol, broadly agreed to in principle at a previous meeting last year, will eliminate 92 percent of the tariffs between the member countries once their respective parliaments ratify the deal, and will phase out the remainder gradually.
“This translates into more investment, more competitiveness and as a consequence, more employment, and good quality employment. This is the fundamental purpose of this whole exercise,” said Colombian President Juan Manuel Santos.
The deal, signed in the colonial Colombian city of Cartagena, will also create a fund to finance infrastructure investments within the four member countries and establish a joint system to monitor and control the price of medicines.
Like other emerging economies, Latin American markets have been buffeted in recent weeks by signs of tighter monetary policy in the United States that has prompted investors to sell off investments, causing these countries' currencies to weaken.
The four nations' total gross domestic product accounts for more than a third of Latin America's overall economic output. Costa Rica, Panama and Guatemala have also expressed interest in becoming members.
The bloc is expected to seek more clout in Latin America by promoting free trade and focusing on fast-growing Asian economies as an alternative to the protectionist policies championed by Mercosur members such as Argentina and Venezuela.
“In this large market that our countries of more than 210 million consumers comprise, we will truly be able to establish integration... and contribute to greater Latin-American integration,” said Mexican President Enrique Pena Nieto.