Emergency Committee For American Trade

ECAT Comments: Welcomes Strong, Market-Opening U.S.-Peru TPA

July 17, 2006

These comments are submitted on behalf of the Emergency Committee for American Trade – ECAT – an association of the chief executives of leading U.S. business enterprises with global operations. ECAT was founded more than three decades ago to promote economic growth through expansionary trade and investment policies. Today, ECAT’s members represent all the principal sectors of the U.S. economy – agriculture, financial, high technology, manufacturing, merchandising, processing, publishing and services. The combined exports of ECAT companies run into the tens of billions of dollars. The jobs they provide for American men and women – including the jobs accounted for by suppliers, dealers, and subcontractors – are located in every state and cover skills of all levels. Their collective annual worldwide sales total nearly $2.4 trillion, and they employ more than five and one-half million persons. ECAT companies are strong supporters of negotiations to eliminate tariffs, remove non-tariff barriers and promote trade liberalization and investment worldwide.

ECAT is submitting these comments to express its strong support for Congressional approval and implementation of the United States-Peru Trade Promotion Agreement (Peru TPA) that will promote new economic opportunities for both countries and continued economic reform in Peru. This agreement also represents an important tool to foster improved ties and promote broader U.S. interests in the region. With the completion of the Peru TPA, the United States now has the opportunity to implement an agreement that will not only make the relationship permanent and more flexible, but will also substantially open markets in Peru for U.S. farm products, U.S. manufactured exports, and U.S. services.

Major Provisions of U.S.-Peru Trade Promotion Agreement

The United States and Peru signed the U.S.-Peru Trade Promotion Agreement (TPA) on April 12, 2006. The primary provisions of the U.S.-Peru Trade Promotion Agreement include the following:

§ Agriculture: Provides immediate duty-free treatment for more than two-thirds of U.S. agricultural exports to Peru, including important U.S. exports such as high-quality beef, cotton, wheat, soybeans, soybean meal, crude soybean oil, key fruits and vegetables, and many processed food products. Tariffs on most remaining products will be phased out within 15 years, with all tariffs eliminated within 17 years, providing improved access for pork, beef, corn, poultry, rice, fruits and vegetables, processed food and dairy products. The FTA also includes provisions to eliminate sanitary and phytosanitary barriers.

§ Manufactured Goods: Eighty percent of U.S. consumer and industrial exports will receive immediate duty-free treatment, including key U.S. exports of auto parts, construction equipment, forest products, information technology products and medical and scientific equipment. Remaining tariffs will be eliminated on all products within 10 years. Peru has agreed to allow trade in remanufactured products.

§ Information Technology: Provides, via a side letter, that Peru will join and become a full participant in the WTO ITA. As a result, Peru will eliminate duties on all high-tech products (e.g., servers, personal computers, printers) covered by the Agreement and allow worldwide exports to enter their markets duty-free. In addition, Peru committed to non-discrimination and national treatment of e-commerce and digital products, and agreed not to impose customs duties on products delivered electronically.

§ Textiles and Apparel: Expands access to the U.S. market through duty-free treatment for apparel made with U.S. and/or Peruvian fabric and, for a temporary period, a limited amount of apparel made with fabric from third countries.

§ Services: Liberalizes services trade and investment in Peru through a negative list approach with few exceptions.

§ Investment: Expands investment opportunities and incorporates generally strong protections, including an investor-state mechanism, for U.S. investment.

§ Intellectual Property Rights: Includes strong protections for trademarks, patents, copyrights, and trade secrets, including stronger penalty requirements, patent term restoration and data exclusivity.

§ Government procurement: Includes important new anti-corruption, transparency and non-discrimination rules for government contracting.

§ Transparency: Includes state-of-the-art transparency standards, including in such areas as customs and regulatory rulemaking (i.e., providing, for example, Internet publication of laws and regulations, expedited release procedures, and provisions for express shipments).

§ Labor and environment: Includes commitments by Peru to enforce effectively its domestic labor and environmental laws. The parties reaffirmed their commitment to International Labor Organization principles and that it is inappropriate to weaken or reduce labor or environmental protections to encourage trade or investment. The parties also agreed to ensure that their environmental laws provide for high levels of environmental protection.

§ Dispute settlement: Provides that obligations in commercial, labor and environment areas are enforceable through a strong and innovative dispute settlement system allowing for monetary fines and other penalties for the failure to meet commitments.

Opportunities Created

U.S. exports to Peru equaled $2.3 billion in 2005, with significant exports of machinery, fuel, plastics and processed foods. U.S. imports from Peru totaled $5.1 billion in 2005, with major imports of precious stones, fuel, apparel and copper. U.S. foreign direct investment in Peru equaled $3.9 billion in 2004.

Most imports from Peru already receive duty-free treatment under the Andean Trade Promotion and Drug Eradication Act (ATPDEA), which was enacted as part of the Trade Act of 2002. The Peru TPA expands this duty-free treatment and makes it permanent.

The U.S.-Peru TPA will expand opportunities for U.S. producers by opening markets and eliminating key barriers. It will also make important improvements to investment protections, intellectual property rights, digital trade and transparency that will promote the rule of law.

For Peru, the trade agreement will expand opportunities and promote economic growth. This is particularly important given that a high percentage of workers in Peru are already employed in industries connected to the United States.

Concerns have been expressed that the Peru TPA will undermine economic progress in the region by allowing more competitive U.S. products, particularly agricultural products, to enter the market. These concerns ignore the very positive impact that free trade agreements, including the North American Free Trade Agreement (NAFTA) have had on economic development. An independent and detailed study by the World Bank published at the end of 2003 – Lessons from NAFTA for Latin American and Caribbean (LAC) Countries: A Summary of Research Findings, by Daniel Lederman, William Maloney, and Luis Servén – analyzed the effects of NAFTA on the Mexican economy, separating out the effects of the peso crisis. It found that:

§ “NAFTA has brought significant economic and social benefits to the Mexican economy.”

§ “Contrary to some predictions, NAFTA has not had a devastating effect on Mexico’s agriculture. In fact, both domestic production and trade in agricultural goods rose during the NAFTA years.” The report goes on to explain why, citing factors such as increased demand and productivity.

§ “In spite of popular perception, there is little ground for concerns that NAFTA, or FTAs more generally, are likely to have a detrimental effect on the availability and/or quality of jobs. . . . . In fact, Mexican firms, as those of the region, more generally, that are exposed to trade tend to pay higher wages, adjusted for skills, are more formal, and invest more in training.”

In short, for Peru, this TPA is part of its effort to continue the reform of its economy and promote economic development, growth and opportunity.

Conclusion

ECAT strongly supports Congressional approval and implementation of the U.S.-Peru TPA as soon as possible.

Attached Document(s): 07-17-06 ECAT Comments on Peru TPA.pdf