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Prospects on the US -Peru Trade Promotion Agreement

Embassy of Peru in the United States. Prospects on the US -Peru Trade Promotion Agreement. Presentation by Eduardo Ferrero Ambassador of Peru. California June 2006. PTPA’S BACKGROUND. ATPDEA.

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Prospects on the US -Peru Trade Promotion Agreement

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  1. Embassy of Peru in the United States Prospects on the US -Peru Trade Promotion Agreement Presentation by Eduardo Ferrero Ambassador of Peru California June 2006

  2. PTPA’S BACKGROUND

  3. 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%.

  7. PERU-US BILATERAL TRADE

  8. 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

  11. Peru and California • Trade plays a significant role in the economic growth of California. International related commerce accounts for approximately one-quarter of the state’s 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 toCalifornia California to Peru

  12. PERUVIAN EXPORTS TO CALIFORNIAMain 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.

  13. 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

  14. Comparative Analysis of the economies

  15. PERU TRADE PROMOTION AGREEMENT (PTPA)

  16. 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

  17. 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

  18. 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

  19. 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.

  20. 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 Peru’s 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)

  21. 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

  22. 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.

  23. 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

  24. 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

  25. 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 

  26. PROSPECTS FOR THE PTPA

  27. 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

  28. 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.

  29. 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 Bush’s.

  30. PERU-US FREE TRADE AGREEMENT

  31. 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

  32. 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.

  33. 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.

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