Prospects on the US Peru Trade Promotion Agreement

1
Prospects on the US -Peru Trade Promotion
Agreement
Embassy of Peru in the United States

• Presentation by Eduardo Ferrero
• Ambassador of Peru

California June 2006
2

• PTPAS BACKGROUND

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ATPDEA

• 1991 US enacted ATPA (Andean Trade Preference
  Act) granting special treatment to Andean
  products as part of its counter narcotics
  strategy in the region.
• 1993 Peru enters ATPA.
• 2001 ATPA expired
• 2002 ATPDEA is enacted (Andean Trade Promotion
  and Drug Eradication Act).
• ATPDEA renewed the special tariff treatment and
  enhanced it to include textiles, footwear and
  products derived from petroleum.

4
Peruvian Exports performance under the ATPA /
ATPDEA
In million
ATPA
ATPDEA
Source SUNAT
5
Peru on the Route of GrowthExports
Source SUNAT

• As promised by President Toledo, Peru has doubled
  exports in the last 4 years.
• Forty-six months of consecutive trade surplus.
• Non-traditional exports have been growing
  consistently over last five years.
• Peruvian Exports grew 37 in 2004 and 33 in
  2005.

6
Peru on the Route of GrowthGross Domestic Product
Source Central Bank of Peru

• As of January 2006 (last available official
  info), the economy has shown solid growth for 55
  consecutive months
• Since 2002, Peruvian GDP is growing at an average
  rate of 5.

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• PERU-US BILATERAL TRADE

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Trade A Growing Trend

• Two-way trade with U.S. has increased from US
  2.6 billion in 1995 to US 7.1 billion in 2005.
• U.S. is our first trading partner. US 5.172
  billion or 30 of our total exports goes to U.S.
• Wide variety of exports reflected in a total of
  2,075 trade categories to the US.
• US 1.977 billion or 17.6 of our total imports
  comes from U.S.

9
Bilateral TradeMain Peruvian exports to U.S.
In millions of dollars
Source USITC
10
Bilateral TradeMain Peruvian Imports from U.S.
In millions of dollars
Source USITC
Complementary on Exports and Imports
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Peru and California

• Trade plays a significant role in the economic
  growth of California. International related
  commerce accounts for approximately one-quarter
  of the states economy.
• California is the third exporter of products to
  Peru among the states of the Union. In 2005 were
  US 119 million, representing 5 of all the US
  exports to Peru, that totalized US 2,289
  million.
• Peruvian exports to California in 2005 were US
  505 million, representing 9.9 of all Peruvian
  exports to US, that totalized US 5,172 million.

Exports
Peru to California
California to Peru
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PERUVIAN EXPORTS TO CALIFORNIA Main Products

• Distillate and residual fuel oil
• Petroleum oil
• Sweaters, pullovers
• Naphtas
• T-shirts
• Paprika
• shirts
• Molybdenum
• Coffee, tea
• Tin.
• California is a potential buyer of Peruvian
  natural gas.

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CALIFORNIA EXPORTS TO PERUMain products

• Computer Electronic products
• Machinery Manufactures
• Crop Production
• Petroleum
• Chemical Manufactures
• Transportation Equipment
• Fabricated Metal Products
• Electric Appliances
• Processed Foods
• Plastics Rubber Products

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Comparative Analysis of the economies
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• PERU TRADE PROMOTION AGREEMENT (PTPA)

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PTPA Timetable

• November 18, 2003 USTR Notified Congress of
  Intent to Initiate Free Trade Talks with Andean
  Countries.
• May 03, 2004 USTR announced Initiation of the
  negotiations with Peru and Ecuador along with
  Colombia in May 18.
• May 18, 2004 December 07, 2005 Negotiations
• January 06, 2006 US Presidential Notification
  to Congress of intention to sign PTPA
• April 12, 2006 Signing of the PTPA
• June - July 2006 PTPA approval before the
  Congresses of Peru and US
• December 31, 2006 ATPDEA will expire
• January 01, 2007 PTPA enters into force

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Why is the PTPA with the US so important for Peru?

• Economic Considerations
• Locking in the benefits of ATPDEA. Binding rules.
  
• Permanent access to biggest market of the world.
• Attraction of new investments from U.S. and other
  countries.
• Peruvian businesses will capture transfer of
  technology and transform already installed
  productive capacity
• PTPA improves the country-risk (clear and stable
  rules)
• It promotes further participation in a global
  economy
•  

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Importance of the PTPA for the U.S.

• Economic Considerations
• Leveling the playing field reciprocal benefits
  
• New markets for exports that would translate into
  new business opportunities, especially for small
  and medium enterprises.
• Stable and secure legal framework for U.S.
  business and investments.
• Provides a legal framework for investment dispute
  settlement
• Fosters strategic alliances between entrepreneurs
  of both countries and an opportunity to forge new
  ones
• Cooperation in global negotiations at WTO and
  FTAA

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Agriculture

• For Peru
• 99 of Peruvian agricultural exports will have
  immediate zero tariff
• Peru will maintain duty free treatment for those
  products included in the ATPDEA from day one.
  Asparagus, artichokes, mangoes, among others,
  will continue to benefit.
• 44 new subheadings not included in the ATPDEA
  will also have immediate duty free treatment.
• Special Safeguards for specifics products have
  been included in the event of a market
  disruption.

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Agriculture

• For U.S.
• 66 of US farm exports to Peru will become Duty
  free immediately, including 99 of current U.S.
  exports to Peru. All the rest of the products
  will be phased out in a maximum of 17 years.
• Immediate duty-free treatment for main US
  agricultural exports to Peru Cotton, wheat,
  soybeans, fruits.
• Peru is the third buyer of US wheat in the
  region. In the first trimester of 2006 Perus
  wheat imports from US has already doubled
  compared with 2005
• Most of the procedures to resolve sanitary and
  phytosanitary barriers to agricultural trade
  including beef, pork and poultry had been
  completed.
• More than 50 farm associations support the PTPA
  (Agricultural Coalition for PTPA)

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Market Access

• For Peru
• 100 of Peruvian industrial exports under ATPDEA
  will continue to enter duty free.
• Textiles and apparel will be duty-free and
  quota-free from the first day of the agreement.
  This include all the textile universe
  ATPDEA-Plus
• Only tuna and 13 subheadings of footwear will not
  enter with zero tariffs immediately.
• Used clothing was not accepted
• United States recognizes Pisco Perú as a
  distinctive product of Peru

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Market Access

• For U.S.
• 80 of US manufactured products will become duty
  free immediately. 7 in five years and the rest
  of the products will phase out over a 10 year
  period.
• Peru will join the Information Technology
  Agreement and thus remove non tariff barriers to
  information technology products.
• Peru has allowed US imports of remanufactured
  goods.
• Substantial market access has also been granted
  in services, e-commerce and telecommunications.
• National Association of Manufacturers supports
  the approval of the PTPA.

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Why is the PTPA with the US so important for Peru?

• Social Considerations
• PTPA will increases quality of live of Peruvian
  people trough
• Access to more and better jobs
• Access to reduced prices as a consumer
• Access to a major variety of quality goods and
  services
• PTPA will contribute to reduce poverty in Peru

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Poverty
Poverty
Extreme Poverty

• Peru has implemented a national strategy for
  poverty reduction based in capacity building,
  promotion of economic opportunities and
  implementation of social programs in rural areas
• Since 2001 the percentage of population living in
  poverty has been reduced. These reductions have
  been way higher in those zones in which ATPA
  trade-related activities have flourished like Ica
  and Lambayeque. Populations in these departments
  have achieved a reduction of Poverty of 18.1 and
  17.5 respectively
• () Preliminary figures

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Why is the PTPA with the US so important for Peru
and US?

• Political and Strategic Considerations
• Further strengthen alliance between both
  countries based on shared values
• Relevant instrument to promote stability in the
  Andean region and Peru through creation of
  economic opportunities.
• Strengthening of democracy and political security
  to the Peruvian population
• PTPA by promoting legal economic activities would
  contribute notably to the fight against drug
  trafficking and alternative development policies
• Contribute in the fight against terrorism
• Binding provisions on issues such as government
  procurement and customs administration will be
  important tool in the fight against corruption 

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• PROSPECTS FOR THE PTPA

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U.S. Congressional Approval

• A prompt approval in the U.S. Congress is
  critical because
• ATPDEA will expire December 31 of 2006. A timely
  approval of PTPA will further attract trade
  investors and partners to Peru.
• In April 12, 2006, Presidential and Congressional
  elections were held in Peru. A Presidential
  runoff was held in June 4 and Dr. Alan Garcia was
  elected.
• In November of 2006, Congressional elections in
  U.S.A. will take place

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U.S. Congressional Approval

• Agreement has sufficient merits for a bipartisan
  approval.
• Labor issues Concern for democrats
• Peru will work along with business community and
  civil society to convey this message People of
  Peru and U.S. will benefit with this Agreement A
  win win case.

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Presidential Elections

• The second round took place on June 4 between
  two candidates
• Mr. Ollanta Humala for UPP
• Mr Alan Garcia for APRA
• With 99.99 of the votes already counted, Mr
  García has obtained 52.6 of the valid votes and
  Mr. Humala 47.4. (As of June 12)
• Although the count has not officially ended yet,
  Mr. García has received several Presidential
  congratulations for his victory including
  President Bushs.

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PERU-US FREE TRADE AGREEMENT
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Peru Congressional Approval

• On June 06, President Toledo presented the PTPA
  for consideration to the Peruvian Congress.
  According to a very recent poll by Universidad
  the Lima, 61 of Peruvians asks for the current
  congress to consider the PTPA. The President of
  the Congress expects a vote to be placed on late
  June or early July.
• According to the poll, 81 of Peruvians favors
  the PTPA compared to 63.7 in march 2006. The
  positive view of the PTPA is shared for all
  socio-economic sectors.
• Three of the major political forces of the
  current Congress are likely to vote for the
  approval of the PTPA Perú Posible, Unidad
  Nacional and APRA

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Conclusions

• The PTPA is a win-win situation for both parties
• PTPA constitutes an important agreement not only
  for its economic and commercial merits but
  because of its political, strategic and social
  aspects.
• ATPDEA expires December 31 2006 and if it is not
  replaced with the PTPA beginning 2007, Peru could
  suffer a setback in the process of economic and
  democratic consolidation, bringing instability to
  the region.

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Conclusions

• For the PTPA to achieve its objectives, is
  critical that both Congresses approve the
  agreement before the end of July.
• For U.S., PTPA will open fast-growing markets for
  its products while offers the opportunity to
  deepen its ties with the region.
• For Peru, the PTPA will be a very important tool
  for its national development and its fight
  against poverty.