On January 16th, both Peruvian President, Alan Garcia, and the United States President, (at the time), George W. Bush, signed legal notices proclaiming the entry into force of the Peru - US Free Trade Agreement ( PTPA).
Its long awaited entry into force this month follows 13 rounds of negotiations that took place in 2004 and 2005, the signing of the PTPA on 12th April 2006, ratification from each country's national Congress in June 2006 (Peru) and December 2007 (U.S.), and an implementation period of reforms in the last year to meet the provisions of the agreement.
The agreement has been hailed as an important achievement for opening up trade and investment opportunities for both countries. For Peru, it will provide substantial benefits, among which we can highlight the following:
- Increased economic output for Peru's export-oriented economy.
- Greater inward flows of long-term foreign investment.
- Increased and more diversified Peruvian exports.
- Opportunities for job creation and a driving force for employment.
- Will increase Peru's competitiveness, reduce its risk-rating and support economic stability.
- It will also benefit consumers by providing a greater variety of imported products and at cheaper prices.
- Through the resulting welfare gains, the PTPA will support governance and democratic stability in Peru.
The United States is a strategic trade partner for Peru. In only the last five years trade between both countries has almost doubled and reached $10.8 billion by the end of 2008. While Peru contributes roughly 0.2% of overall U.S. imports of goods, the U.S. absorbs a significant share of Peruvian exports. Last year, its take was 18.4% of all exports at a value of $5.7 billion dollars*.
For Peru, market access has been a critical component in helping expand export volumes. With an average buying power that is 180 times that found in their domestic market, the U.S. provides Peruvian exporters with the opportunity to add value to their production chains and has already helped in the development of a number of highly competitive industries in non-traditional fields. In this respect, the PTPA extends and guarantees the market entry preferences Peru has enjoyed since 1991 under the Andean Trade Preferences Act (ATPA) and its successor, the Andean Trade Preferences Drug Eradication ACT (ATPDEA) of 2002.
At $3.6 billion in exports last year, the mining and hydrocarbon sector continues to be the main component of trade with the U.S. Peru is its third largest supplier of copper and silver and its fourth major external source of gold and zinc**. However, it has been non-traditional sectors such as textiles and apparel and higher valued agro exports that have seen the fastest growth year on year since the ATPDEA entered into force in mid 2002. Since then, textile exports to the U.S. have doubled, reaching US$ 807 million in 2008, and non-traditional agro exports have trebled to over $580 million dollars.
SOURCE: Peruvian Embassy, based on PromPeru figures
The Peruvian Ministry of Commerce and Tourism (MINCETUR) estimates that if the PTPA leads to a further U.S. market penetration for Peru of as little as 0.1%, this will result in a 60% increase in its total exports and an additional 4% in GDP growth.
The PTPA will also be a major element in attracting further U.S. investment to Peru, enhancing what is already deemed one of the most investor friendly climates in the world and the Investment-grade status Peru was granted in 2008 by the ratings agencies (Fitch's, S&P). The U.S. is already the third-largest investor in Peru (after the UK) with an FDI stock of US$ 2.76 billion dollars, mainly directed towards the industrial and mining sectors ($933 bn and $638 bn respectively).***
*Based on PROMPERU 2008 export figures.
**Based on U.S. Department of Commerce figures through September 2008.
***Proinversion figures of registered FDI stock to 30 June 2008.
Main Provisions:
-The PTPA establishes immediate duty free entry for 98% of Peruvian exports (tariff codes). The remaining export goods will be phased down to zero tariff in 5, 10, 15 and 17 year periods, depending on their classifications.
- All Peruvian textile and apparel exports now enter the U.S. duty free.
- In the food sector, products included in the previous ATPDEA preference scheme (representing 99% of Peruvian agro exports) will now enjoy permanent duty free entry. This includes leading exports such as asparagus, paprika, grapes, lentils and beans, grapes, mangoes, clementines and ethanol. There are also new duty free opportunities for products such as olives, cotton, vegetable preserves and other fruits.
-Tariff-free entry for capital goods imports from Peru will provide key machinery and technology inputs and enhance Peruvian businesses' productivity.
- Investment: the PTPA establishes a secure and predictable investment framework that will lead to greater attraction of U.S. investors to Peru.
- Immediate duty free entry is granted to 80% of U.S. consumer and industrial product exports to Peru, with the remaining tariffs phased out in the next 10 years.
- Over two-thirds of U.S. farm products gain duty free access. However, to avoid import surges, tariffs on sensitive agricultural product exports to Peru will be phased out in longer 15 and 17 year periods.
- Both countries agree on improved standards and enforcement of intellectual property rights and on protection of internationally-recognized labour rights.
- Environmental protection: The PTPA includes substantial measures to protect the environment, including the conservation of forestry and biodiversity, as well as an important Agreement on Environmental Cooperation for environmental capacity building, among other provisions.
Further information as well as the full text and annexes of the PTPA are avilable:
In Spanish at the Peruvian Ministry of Commerce and Tourism (MINCETUR):
http://www.tlcperu-eeuu.gob.pe/index.php
In English at the Office of the United States Trade Representative (USTR):
http://www.ustr.gov/Trade_Agreements/Bilateral/Peru_TPA/Section_Index.html
In English at the U.S. Department of Commerce:
http://www.tradeagreements.gov/ExistingFTAs/index.htm
Sources: PromPeru, SUNAT, MINCETUR, Proinversion, U.S. Department of Commerce, USTR, CENTRUM Católica.
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