Peru Ambassador to U.S. explains FTA impact on Peruvian economy

Enhanced trade access increases Peru’s competitiveness vis-à-vis countries that do not have such trade preferences in place, Peruvian Ambassador to the U.S. Luis M. Castilla affirmed. 

"The figures tell the story," he told.

"Exports rose from $17.1 billion a year in 2005 to $46.4 billion in 2012 (before slowing in the past two years due to a drop in international commodity prices)," Mr. Castilla wrote in an article published by Americas Quarterly.

Trade preferences have also helped Peru diversify export markets and increase exports of non-traditional value-added goods, which nearly tripled in the past 10 years to $11.6 billion in 2014.

Successful non-traditional export industries include textiles, high-quality fruits and vegetables (as opposed to bulk agriculture commodities), fisheries, jewelry, crafts, and metal- and wood-based products. According to the diplomat, Peruvian trade policy aims to make these products constitute a "greater share" of overall exports.

FTAs create opportunities for new export products and they consolidate existing unilateral and temporary trade preferences, such as the U.S. Andean Trade Preferences Drug Eradication Act (ATPDEA) and the European Union’s Generalized Scheme of Preferences (GSP+).

"For example, the 2009 Peru-U.S. Trade Promotion Agreement (PTPA) phases out all duties on 99.5 percent of U.S. tariff lines, including on all Peruvian agro-exports to the United States," the Ambassador reminded.

Impact on businesses

As a result, Peruvian exports to the U.S. grew by 26 percent during the first six years of the agreement. In this period, non-traditional industries in Peru also grew by 80 percent, and Peru exported more than 900 new products, valued at nearly $1 billion, to the United States.

For Peruvian businesses and households, the welfare gains from trade liberalization are equally significant. FTAs generate new export opportunities, leading to the creation of new businesses.

In the past 10 years, the number of exporting businesses operating in the country nearly doubled to over 8,000. The effect on employment is also significant: An estimated 15 of every 100 jobs in Peru are sustained by exports.

"On the import side, Peruvian manufacturers have better access to capital goods and cheaper foreign inputs for domestic production, which, in turn, enhances their export competitiveness," he underlined.

Lower import duties—combined with rising wages and low inflation—have also led consumers to enjoy a significantly expanded and more affordable basket of goods. Cheaper imports contribute to greater disposable income, leading to increased and more sophisticated consumption, which also fuels economic growth.

The article was made possible thanks to a contribution made by the Embassy of Peru in the U.S.