Peru s Economic Performance and Prospects for the Peru - USA Trade Promotion Agreement

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1 Embassy of Peru in the United States Peru s Economic Performance and Prospects for the Peru - USA Trade Promotion Agreement Presentation by Eduardo Ferrero Ambassador of Peru George Washington University February 2006

2 Content I. ECONOMIC PERFORMANCE II. III. IV. BILATERAL TRADE WITH U.S.A U.S.A. INVESTMENT IN PERU TRADE PROMOTION AGREEMENT V. CONCLUSIONS 2

3 I. ECONOMIC PERFORMANCE 3

4 Peru on the Route of Growth President Alejandro Toledo embarked Peru on the route of growth with a rigorous fiscal order and a responsible economic management. After the implementation of an ambitious economic liberalization and structural reform program, Peru has become one of the best performing economies in the region President Toledo made fight against poverty the main objective of o his mandate. The impressive macroeconomic figures of Peru reflects the economic development and a strong commitment towards Poverty reduction. The first results have been reaching the population: Poverty, Extreme Poverty and Employment indexes had improved. President Toledo s administration has set the stage for the next government to build on strong economic achievements for the benefit of Peruvians. 4

5 Gross Domestic Product Source: Central Bank of Peru * As of November % Change * As of December 2005, the economy has shown solid growth for 54 consecutive months Since 2002, Peruvian GDP is growing at an average rate of 5%. 5

6 Exports Source: SUNAT 20 Billion of US$ 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

7 Net International Reserves Source: Central Bank of Peru US$ Billion Peru reached a historic level of net international reserves (NIR) of US $ 15.2 billion in July

8 Inflation Source: Ministry of Economy and Finance % change Peru has maintained one of the lowest inflation rates in the Western Hemisphere Inter-American Dialogue: Peru is an example of a durable and well-tested inflation targeting regime 8

9 Poverty Poverty Extreme Poverty Porcentje Porcentaje 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 9

10 Foreign Investment Peru has liberalized all sectors to FDI. Framework of legal stability and respect for property rights. Freedom for private investment in terms of location. Free repatriation of profits and dividends-royalties. Equal treatment principle regardless of origin or nationality of investors. 29 bilateral protection investment treaties. Tax stability agreements. On July 2005, Peru s country risk reached an historical minimum low of 184 EMBI+. Standard & Poor s upgraded the Peruvian outlook from stable to positive Lima Chamber of Commerce: FDI will grow 12% in

11 Main Mining Investment Projects Underway Las Bambas La Granja Copper Mine Cerro Verde multi-mineral mineral mine Alto Chicama Gold Mine Cerro Corona Gold Mine Toromocho copper & molybdenum mine Bayovar Phosphate mine US$ 1000 Million Expected Investment Exploration US$ 60 Million. Total Investment US$700 Million US$ 450 Million US$ 340 Million US$ 277 Million Exploration: US$ 300 Million US$ 263 Million Xstrata AG. (Switzerland) Rio Tinto (Great Britain) Phelps Dodge (United States) Barrick Gold (Canada) Gold Fields (South Africa) Peru Copper Inc. (Canada) Vale do Rio Doce (Brazil) The National Mining Plan expects 10 billion dollars in FDI until More than 260 new projects have been identified 11

Camisea project One of the most important natural gas reserves in Latin America The Camisea Project comprised; Consortium with companies from Argentina, USA, Korea and Algeria.

12 Camisea project One of the most important natural gas reserves in Latin America The Camisea Project comprised; Consortium with companies from Argentina, USA, Korea and Algeria. Extraction of Natural Gas (Cuzco). Construction and operation of two pipelines Distribution network for natural gas in Lima, Callao and other cities. It involved more than 2 billion in investments and will turn Peru into a net exporter of energy. Camisea II: Consortium of Hunt Oil Co. (50%), Repsol YPF SA (30%), and SK Korea Construction of LNG plant began in Construction is slated to finish in 2009 LNG plant will export natural gas to the U.S. and Mexico. LNG plant is part of a project aiming to make Peru energy self-sufficient, sufficient, create 35,000 jobs Investment will be $3.3 billion that will add 1 percent to annual economic growth. 12

13 II.- BILATERAL TRADE WITH USA 13

14 Bilateral Trade Two-way way trade with U.S. has increased from US$ 2.6 billion in 1995 to US$ 7.1 billion in U.S. is our first trading partner. US$ 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$ billion or 17.6% of our total imports comes from U.S. 14

15 Comparative Analysis of the economies As of 2004 Population GDP Exports Imports Peru 28 Million 65.1 Billion 17 Billion 12 Billion United States 293 Million 10.9 Trillion 824 Billion (*) 1.5 Trillion (*) Sources: BCRP and USITC US Imports of goods from Peru represents only 0.30% of total U.S. imports (as of November 2005). Our trade has no negative impact in the U.S. economy; on the contrary, it is mutually beneficial. (*) Jan Nov

16 Bilateral Trade Main Peruvian exports to U.S % In millions of dollars % Textiles Copper Cathodes Gold 52 2% Oils Tin 55 2% Silver 57 2% 59 2% 86 4% 97 4% % % % Asparagus Coffee Jewelry Other vegetables Other 16 Source: USITC

17 Bilateral Trade Main Peruvian Imports from U.S. In millions of dollars % % Machinery Plastics Wheat Electric Machinery 25 2% Oils Tv and telephone apparatus 26 2% Chemicals Cotton 31 2% 33 2% 115 7% Optic and surgical instruments Vehicles Vegetable and animal oils 39 3% 46 3% 47 3% 69 4% 76 5% 83 5% 90 6% Complementary on Exports and Imports 101 7% Jewelry Paper Fertilizers Other Source: USITC 17

18 III. U.S. INVESTMENT IN PERU 18

19 US Investment in Peru The U.S.A. is main source of foreign investment in Peru. Direct U.S.A. investment is more than $10 billion according to Amcham Peru More than 500 US companies have businesses in Peru 19

20 USA investment in different sectors Trade 7% Services 5% Transportation 5% Oil 3% Other 3% Mining 28% Industry 14% Finance 15% Energy 20% Source : Proinversión US investment is diversified through various sectors (mining, energy, services, industry, telecommunications, banking, agriculture, etc.) 20

21 Main US investing firms in Peru are (by sector) Energy PSEG (Nueva Jersey) Duke Energy (Texas) The Maple Gas Companies (Texas) Hunt Oil Company (Texas) Sempra Energy (California) Finances JP Morgan (New York) Citigroup (New York) Bank of Boston (Massachusetts) AETNA International Mining Newmont Mining Co. (Colorado) Doe Run Company (Missouri) Phelps Dodge (Arizona) Asarco (Arizona) Industry Procter & Gamble (Illinois) Caterpillar (Illinois) 3M (Minnesota) Coca Cola (Georgia) Goodyear (Ohio) General Electric (New York) Air Transport and Tourism Delta Airlines (Georgia) Continental Airlines (New Jersey) American Airlines (Texas) Marriot Sheraton International Services Microsoft (Washington) Bechtel (California) Nextel (Virginia) International Wireless Exxon Mobil Chevron Texaco Corporation 21

22 IV.- PERU TRADE PROMOTION AGREEMENT (PTPA) 22

23 PTPA Background: 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. December 31, 2006: ATPDEA will expire. 23

24 Peruvian Exports performance under the ATPA / ATPDEA In 1,000 million ATPA ATPDEA Source: SUNAT 24

25 PTPA Negotiations Timetable Nov/18/2003 : USTR Notified Congress of Intent to Initiate Free Trade Talks with Andean Countries. May/03/04 : USTR announced Initiation of the negotiations with Peru and Ecuador along with Colombia in May /18/04 05/30/04 : First Round of Negotiations in Cartagena, Colombia. 06/14/04 06/18/04 Second Round of Negotiations in Atlanta, U.S. 07/26/04 07/30/04 Third Round of Negotiations in Lima, Peru. 09/13/04 09/17/04 Fourth Round of Negotiations in San Juan, Puerto Rico. 10/25/04 10/29/04 Fifth Round of Negotiations in Guayaquil, Ecuador. 12/13/04 12/17/04 Sixth Round of Negotiations in Tucson, U.S. 02/07/05 02/11/05 Seventh Round of Negotiations in Cartagena, Colombia. 03/14/05 03/18/05 Eight Round of Negotiations in Washington, DC, U.S. 04/18/05 04/22/05 Ninth Round of Negotiations in Lima, Peru. 06/06/05 06/10/05 Tenth Round of Negotiations in Guayaquil, Ecuador. 07/18/05 07/22/05 Eleventh Round of Negotiations in Miami, U.S. 09/19/05 09/23/05 Twelfth Round of Negotiations in Cartagena, Colombia. Nov/14/05 12/07/05 Thirteenth Round of Negotiations in Washington,DC, U.S Dec End of Negotiations Jan/06/06 : US Presidential Notification to Congress of intention signing PTPA Apr/2006: Signing of the PTPA May - Jul 2006: PTPA approval before the Congresses of the parties 25

26 Why is the PTPA with the US so Economic Considerations: important for Peru? 1. Locking in the benefits of ATPDEA. Binding rules. 2. Permanent access to biggest market of the world. 3. Attraction of new investments from U.S. and other countries. 4. Peruvian businesses will capture transfer of technology and transform already installed productive capacity 5. PTPA improves the country-risk risk (clear and stable rules) 6. It promotes further participation in a global economy 26

27 Why is the PTPA with the US so important for Peru? Economic Development: Peruvian GDP with PTPA, could grow more than twofold in ten years reaching 206 billion (According to recent studies made by the Universidad del Pacífico) GDP per capita could surge from US$ 2,800 to US$ 6,170. In 2017 unemployment rate could fall from 10.5% to 6.3% and informal employment could be reduced from 45% to 15.5%. In 10 years 5.7 million new jobs could be created. Fiscal surplus could help reduce external debt to 15% of GDP Total Peruvian exports could amount to 25 billion in That same year Exports per capita could reach US$ 850 from US$ 267 in 2001 (According to the Ministry of Foreign Trade) 27

28 Why is the PTPA with the US so Social Considerations: important for Peru? 1. In 2001, 54.3% of the Peruvian population lived under the line of poverty and 24.1% subsisted under extreme poverty conditions. 2. In 2004 those figures were reduced to 51.6% and 19.2% respectively. PTPA was an important tool to improve the situation 3. Therefore, TPA will contribute to reduce poverty in Peru 4. 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 28

29 Why is the PTPA with the US so important for Peru and US? Political and Strategic Considerations 1. Further strengthen alliance between both countries based on shared values 2. Relevant instrument to promote stability in the Andean region and Peru through creation of economic opportunities. 3. Strengthening of democracy and political security to the Peruvian population 4. PTPA by promoting legal economic activities would contribute notably to the fight against drug trafficking and alternative development policies 5. Contribute in the fight against terrorism 6. Binding provisions on issues such as government procurement and customs administration will be important tool in the fight against corruption 29

30 Importance of the PTPA for the USA 1. Leveling the playing field: reciprocal benefits 2. New markets for exports that would translate into new business opportunities, especially for small and medium enterprises. 3. Stable and secure legal framework for US business and investments. s. 4. Provides a legal framework for investment dispute settlement 5. Fosters strategic alliances between entrepreneurs of both countries and an opportunity to forge new ones 6. Cooperation in global negotiations at WTO In Conclusion PTPA is a win-win case for all parties 30

31 Summary of the PTPA 1. Initial Provisions 2. Market Access 3. Textiles and Apparel 4. Rules of Origin 5. Customs Administration and Trade Facilitation 6. Sanitary & Phytosanitary Measures 7. Technical Barriers to Trade 8. Trade Remedies 9. Government Procurement 10. Investment 11. Cross-Border Trade in Services 12. Financial Services 13. Competition Policy 14. Telecommunications 15. Electronic Commerce 16. Intellectual Property Rights 17. Labor 18. Environment 19. Transparency 20. Administration of the Agreement and Trade Capacity Building 21. Dispute Settlement 22. Exceptions 23. Final Provisions 31

32 Main Issues: 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, paprika, artichokes, mangoes, grapes, 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. 32

33 Main Issues: Agriculture For U.S.A. More than two thirds of US farm exports to Peru will become Duty free immediately. All the rest of the products will be phased out t in a maximum of 17 years. Peru is a growing market for US farm products being the first buyer of US wheat in the region. Immediate duty-free treatment for main US agricultural exports to Peru: Cotton, wheat, soybeans, fruits. Procedures to resolve sanitary and phytosanitary barriers to agricultural trade including beef, pork and poultry. US Farm associations such as the National Pork Producers Council have hailed the agreement. 33

34 Main Issues: IPR For Peru Nothing in the IP chapter affects Peru s ability to take necessary steps to protect public health by promoting access to medicines. Fist time USA included, in a side letter, its understanding that t all limitations and exception to safeguard public health are applicable to the Data Protection provisions. Second-use patents were not accepted. Recognition of the importance of traditional knowledge and biodiversity and measures to its protection. Patents protection for animals were not included. Patents protection for plants will only be permitted if they involved an inventive step and is capable of industrial application. 34

35 Main Issues: IPR For U.S.A. Peru has granted the same treatment to American companies as those of Peruvian origin. Data exclusivity protection: the parties agreed 5 years for pharmaceutical products and 10 years for agricultural chemicals. Stronger penalties for Piracy and Counterfeiting Includes protection for trademarks, geographical indications and internet domain names. Ensures extended terms of protection for copyrighted works PHRMA has welcomed the PTPA 35

36 Main Issues: Market Access For Peru 100% of Peruvian industrial exports under ATPDEA will continue to enter duty free. Of the remaining industrial goods only tuna and 13 subheadings of footwear will not enter with zero tariffs immediately. 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 Plus Used clothing was not accepted United States recognizes Pisco Perú as a distinctive product of Peru 36

37 Main Issues: Market Access For U.S.A. 80 percent of US Consumer and Industrial 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-e commerce and telecommunications. National Association of Manufacturers supports the approval of the t PTPA. 37

38 U.S. Congressional Approval A prompt approval in the U.S. Congress is critical because: I. ATPDEA will expire December 31 of A timely approval of PTPA will further attract trade investors and partners to Peru. II. III. In April May 2006, Presidential and Congressional elections will be held in Peru. In November of 2006, Congressional elections in U.S.A. will take place 38

39 U.S. Congressional Approval Agreement has sufficient merits for a bipartisan approval. Peru will work along with the business community and civil society to convey this message to the U.S. Congress: people of Peru and the US will benefit greatly with this Agreement. 39

40 Conclusions The PTPA is a win-win situation for its 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 and if it is not replaced with the PTPA beginning 2007, Peru and the Andean Region could suffer a setback in the process of economic and democratic consolidation, bringing instability to the hemisphere. 40

41 Conclusions For the PTPA to achieve its objectives, is critical that both Congresses approve the agreement before 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. 41

2005/FTA-RTA/WKSP/010a Peru s FTAs/RTAs

2005/FTA-RTA/WKSP/010a Peru s FTAs/RTAs /FTA-RTA/WKSP/010a Peru s FTAs/RTAs Submitted by: Julio Chan APEC Director, Ministry of Foreign Trade and Tourism, Peru Workshop on Identifying and Addressing Possible Impacts of RTAs/FTAs Development