In the early to mid-1990s, hope and optimism were spreading throughout the international trade community in the Western Hemisphere regarding the lowering of trade barriers and the expansion of free trade throughout the Americas. In the current U.S. political environment, it is often forgotten that in the 1990s free trade was embraced by both Republicans and Democrats as evidenced by the fact that negotiations for The North American Free Trade Agreement (NAFTA) began under the Republican administration of President George H.W. Bush and was eventually ratified and entered into force in January 1994 under the Democratic Clinton administration. As is well known, President Clinton was a staunch believer in free trade, and he hoped to see it expand.

In December 1994, the Summit of the Americas conference took place in Miami. This milestone trade event was attended by the democratically elected leaders of 34 countries from throughout the hemisphere. Free trade was riding higher than ever then, and the leaders of the Summit of the Americas concluded with an agreement calling for the establishment of a Free Trade Area of the Americas (FTAA) by 2005 that was to stretch from the far reaches of northern Canada to the southern tips of Argentina and Chile. 2005 came and went with no such agreement, and since 1994 many factors have dimmed the prospects for an FTAA, including 9/11 and the election of left-leaning governments opposed to free trade agreements with the United States in Bolivia, Ecuador, and Venezuela. For now it appears the FTAA is on life support as evidenced by the number of bilateral and regional agreements - such as the one with Peru - that the Bush administration pursued during the past 8 years.

Bilateral and Regional Approach to Free Trade

The Administration of President George W. Bush that came into power in 2001 made the expansion of free trade agreements a key part of U.S. economic and diplomatic foreign policy and an important national security tool in the fight against terrorism and drug trafficking. The next Latin American country after Mexico that successfully negotiated and implemented a free trade agreement with the United States was Chile; its FTA with the United States entered into force in 2004. Further expansion of free trade and a possible FTAA were both still alive and well at this point.

Next up was the DR-CAFTA agreement that first entered into effect for some parties in 2006 and is now fully implemented. DR-CAFTA linked the United States to the Central American countries of Costa Rica, El Salvador, Guatemala, Honduras, and Nicaragua as well as the Caribbean nation of the Dominican Republic. By the time CAFTA came into force the prospective FTAA was beginning to resemble a jigsaw puzzle, as the United States had free trade agreements with countries in all parts of the Americas including North, Central and South America, as well as the Caribbean. The United States continued to seek expansion of free trade hemisphere-wide and began talks with Panama and with the South American Andean nations including of course Colombia and Peru.

United States - Peru Preferential Trade

The United States has long used trade as a way to further its political and diplomatic interests, and Peru has been a beneficiary enjoying preferential trade benefits beginning with those provided by the Generalized System of Preferences going back to the 1970s when the program was initiated under the Trade Act of 1974.

When studying preferential trade benefits enjoyed by Peru it is useful to examine other earlier hemispheric unilateral programs instituted by the United States. The Caribbean Basin Initiative (CBI) for example came into effect during the turbulent times of the Cold War in the early 1980s as a response by the Reagan Administration to the spread of Soviet and Cuban influence and revolution to Central America and other areas of Latin America. CBI was to a certain extent the model that led to the Andean Trade Preference Act (ATPA) which came into effect in 1991 as a trade and economic growth based response to another type of security concern, the increasing influence of illicit narcotics cultivation and trafficking and the related threat to Andean regional stability. Under ATPA, qualifying products of Bolivia, Colombia, Ecuador, and Peru gained duty free access to the U.S. market on the majority of their exports. Although ATPA was seen as more beneficial to the Andean countries than GSP, sensitive product categories that held much promise for Andean exporters such as textiles, wearing apparel, and tuna still did not receive duty-free treatment, and the benefits themselves were subject to domestic U.S. and international political posturing as the program required renewal.

Although wearing apparel exports were eventually granted improved market access under the Andean Trade Promotion and Drug Eradication Act (ATPDEA) of 2002 which expanded upon the original ATPA program, it was still clear that both the United States and the Andean countries had much to gain by pursuing free trade agreements. Initially, the United States began negotiations on a free trade agreement with the Andean nations together, in a fashion similar to the way that it had negotiated CAFTA, but ended up pursuing bilateral agreements with Colombia and Peru due to political developments in Bolivia and Ecuador.

Background on the United States-Peru Trade Promotion Agreement

The United States-Peru Trade Promotion Agreement (PTPA) represents a significant development for both countries for a number of reasons. To begin with, it is the first free trade agreement (FTA) that the United States has successfully negotiated, signed, and ratified with an Andean country. Secondly, it expands the geographic reach of the U.S. free trade that began under NAFTA in 1994 to almost all geographic regions of the Americas.

The PTPA is important to both the United States and Peru for many reasons. For the former, it is another piece in the FTAA puzzle, one that opens the growing Peruvian market up by improving market access through lowering barriers to the export of goods and services. For the Peruvians, it solidifies diplomatic relations with the United States and provides permanent duty-free access to the largest consumer market in the world.

As free trade is a divisive issue (even more so during election years) that is often judged based more on sound bites than on reasoned analysis, the PTPA probably does not get enough credit for more comprehensively addressing important socio-economic issues such as workers’ rights and environmental protection than previous FTA’s and for helping small to medium-sized enterprises (SMEs) better take advantage of trade agreements. Because of the dramatic economic downturn in recent months and the fact that a new administration is now in the White House, the agreement with Peru may very well be the last FTA that is implemented by the United States for some time.

The Peruvian Market

The Peruvian market is a growing one that offers many opportunities for U.S. exporters of goods and services of all sizes. According to United Nations data taken from World Population Prospects, Peru has an estimated population of around 28 million. Figures provided by the U.S. International Trade Administration (ITA) (http://www.trade.gov/td/industry/otea/OTII/PeruFTA/Peru_index.html) reveal that the United States exported $2.9 billion dollars of goods to Peru in 2006, a figure that represents an important increase from $1.6 billion in 2002. The ITA also identifies Texas ($797 million) and Florida ($658 million) as the two largest state exporters of merchandise to Peru; together they accounted for around half of such exports. Other important exporters to Peru in 2006 included Louisiana ($206 million), Illinois ($198 million), California ($181 million), Georgia ($64 million), New York ( $62 million), South Carolina ($58 million), Ohio ($56 million), and New Jersey ($52 million).

It is important to note that 44 states increased their exports to Peru from 2002 to 2006. Texas saw its exports more than double during that period, from $384 million in 2002 to $797 million in 2006. Exports from Florida rose by $261 million, from Illinois by $162 million, from Louisiana by $101 million, and from California by almost $100 million.

What Does the PTPA Actually Do?

The United States and Peru signed the PTPA in April 2006. The Peruvian legislature ratified the Agreement in June 2006 and a protocol of amendment in June 2007. President Bush signed the United States-Peru Trade Promotion Agreement Implementation Act in December 2007. Finally, in one of his last significant acts just days before leaving the Whitehouse, President Bush issued a Presidential Proclamation certifying that Peru had complied with the necessary legal reforms and making the agreement’s effective date February 1, 2009.

The PTPA owes a great deal to its Western Hemisphere predecessors, including NAFTA, the U.S.-Chile FTA, and DR-CAFTA, but it has its own distinct identity. The PTPA opens up new market opportunities for U.S. and Peruvian exporters of goods and services. U.S. goods exporters will benefit from increased market access, the elimination of duties on qualifying goods, enhanced protection of intellectual property rights, trade facilitation, customs modernization, and transparency. U.S. service providers from many different sectors including banking, insurance, telecommunications, and transportation will have access to the Peruvian market for the first time.

The Office of the United States Trade Representative (USTR) has identified the following benefits of the PTPA:

• Duty-free status for 80% of qualifying U.S. exports of consumer and industrial products immediately upon entry into force of the agreement
• New market access for U.S. farmers and ranchers
• Strong protections for U.S. investors
• Expanded access to service markets
• Greater protection for intellectual property rights
• Internationally recognized labor rights
• Commitments and cooperation to protect the environment
• Fair and open government procurement
• An open and competitive telecommunications market
• Increased transparency
• Dispute settlement

Conclusion

The United States-Peru Trade Promotion Agreement is an important piece in the expansion of free trade throughout the hemisphere. The PTPA offers a number of benefits to Peruvian and U.S. exporters and importers as well as to the consumers of both countries and furthers the foreign policy interests of both nations. The agreement greatly improves market access to the Peruvian market for U.S. exporters of goods and services by eliminating tariffs and restrictions. Peruvian exporters on the other hand gain more permanent preferential access to the U.S. market and have less reason to be concerned with the loss of such preferences in the future as they are not subject to the frequent renewal process and political uncertainties that GSP and ATPA were.

Anthony Cambas is an International Trade and Customs Consultant who has provided technical assistance and advice in numerous Latin American countries, Nepal, and Africa. He has more than 20 years of experience in international trade in both the private and public sectors. Mr. Cambas formerly worked for PIERS and is a former U.S. Customs Import Specialist Team Leader (Port of Miami, FL), a licensed Customs Broker (CHB) and a Certified Global Business Professional (CGBP). He possesses a B.A. in International Relations from Florida International University and a master’s degree in International Customs Law and Administration from the University of Canberra.

This entry was posted on Tuesday, February 10, 2009 at 11:32 am and is filed under Peru, Free trade agreements. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.