Emergency Committee For American Trade

ECAT Urges Swift Congressional Approval of U.S.-Peru TPA

STATEMENT FOR THE RECORD OF THE

EMERGENCY COMMITTEE FOR AMERICAN TRADE

FOR HEARING ON U.S.-PERU TRADE

PROMOTION AGREEMENT

BEFORE THE U.S. SENATE COMMITTEE ON FINANCE

September 11, 2007

This statement is 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 over $2.5 trillion, and they employ more than six million persons. ECAT companies are strong supporters of negotiations to eliminate tariffs, remove non-tariff barriers and promote trade liberalization and investment worldwide.

ECAT and ECAT members have actively followed the negotiation of the U.S.-Peru Trade Promotion Agreement (Peru TPA). ECAT finds that the Peru TPA is a strong and high-standard agreement that will promote new economic opportunities for both countries and continued economic reform in Peru. Several attributes of the Peru TPA are very important, including its comprehensiveness, its broad and swift market liberalization in all major sectors, and its strong rules promoting transparency, protection of property and non-discrimination. This agreement also represents an important tool to foster improved ties and promote broader U.S. interests in the region. Therefore, ECAT strongly supports swift Congressional approval and implementation of the Peru TPA.

The United States and Peru signed the Peru TPA on April 12, 2006. The TPA was amended on June 25, 2007, to incorporate the provisions of the Administration-Congressional Trade Deal, which the Peruvian legislature has approved. Key benefits from this agreement are enumerated below.

Peru TPA Promotes Comprehensive Market Liberalization

The Peru TPA is a comprehensive agreement, including market opening for all major sectors of the economy, including agriculture, manufactured goods and services. The elimination of tariff and non-tariff barriers and other liberalization measures in both countries will promote new economic opportunities and new relationships that will be beneficial to both the United States and Peru.

Peru TPA Front-Loads Liberalization in Consumer and Industrial Goods

The Peru TPA requires Peru to provide duty-free treatment immediately upon entry-into-force for 80 percent of U.S. exports of consumer and industrial goods, 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. Peru also agreed to join the WTO Information Technology Agreement, meaning that Peru will eliminate duties on all high-tech products (e.g., servers, personal computers, printers) covered by the TPA 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.

The elimination of industrial tariffs required by the Peru TPA will promote significant new export opportunities for U.S. manufacturers. Consider the following average Peruvian tariffs on imports from the United States:

§ Automobiles and parts: 7.4 percent

§ Chemicals: 7.1 percent

§ Consumer goods: 11.1 percent

§ Information technology: 5.8 percent

§ Infrastructure and machinery: 5.9 percent

§ Paper and paper products: 9.7 percent

§ Transportation equipment: 5.5 percent

Source: U.S. Department of Commerce

The Peru TPA will also eliminate non-tariff barriers, including technical barriers to trade, and facilitate the movement of goods, which will also help facilitate U.S. manufactured exports to Peru.

Given the increase in U.S. manufactured exports to Peru since 2003 (from $1.4 billion in 2003 to $2.4 billion in 2006), the front-loaded elimination of tariff and non-tariff barriers by the Peru TPA will promote continued growth and economic opportunities for the United States in the consumer and manufactured goods sectors and provide U.S. products with a strong competitive export advantage over products from many other parts of the world.

As most of Peru’s goods already enter the United States duty-free under the Andean Trade Preference Act (which expires at the end of February 2008), the Peru TPA is very important for Peru to provide a more stable and long-term environment for Peru’s manufacturers to participate in the U.S. market.

Peru TPA Requires Major Liberalization of Peru’s Services Markets

The Peru TPA also requires liberalization of all service sectors on a negative-list basis, with limited exceptions. Key commitments in the agreement include the elimination of many cross-border and investment restrictions in the service sectors, as well as the elimination and/or reduction of many other barriers, such as local-hiring and local-content requirements. Given the importance of the services sector to the U.S. economy, the elimination and reduction of barriers will produce important new economic opportunities.

Key sectors for which U.S. service providers will see new growth opportunities as a result of the elimination of barriers include audio visual, construction and engineering, energy, financial (including banking and insurance), information technology and telecommunications services.

Peru TPA Requires Major Liberalization of Peru’s Agricultural Markets

The Peru TPA will also ensure the liberalization of Peru’s agricultural markets in a manner that will strongly benefit U.S. agricultural producers. In particular, the Peru TPA provides immediate duty-free treatment for more than two-thirds of current U.S. agricultural exports to Peru, including such important U.S. exports 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 TPA also includes provisions to eliminate sanitary and phytosanitary barriers.

Given that most of Peru’s agricultural goods already enter the United States duty-free under the Andean Trade Preference Act which expires at the end of February 2008, the Peru TPA is also very important to Peru to provide a more stable and long-term environment for Peru’s agricultural producers to participate in the U.S. market.

Peru TPA Sets in Place Critical Rules to Promote Greater Market Access and Improved Market Functioning

In addition to its many market-opening provisions for consumer and industrial goods, agricultural products and services, the Peru TPA also incorporates rules in areas such as transparency, investment, government procurement, intellectual property and dispute settlement that are critical to enhance and expand U.S. economic benefits under this agreement, as well as benefit Peru’s own economic development and enhance its rule of law.

Transparency

The Peru TPA includes important commitments on transparency that will promote major advances in the structure of government accountability and information flows that are critically important to trade and investment liberalization and the economic growth and poverty reduction that it supports. Among the key provisions included in the Peru TPA are the prompt publication of laws, regulations, procedures and rulings; the opportunity for input by interested parties in certain rule-making exercises; prompt review and correction of administrative actions; and strong anti-corruption provisions. The transparency that this agreement promotes, both in the terms of the open flow of information and the accountability of government officials, is a vitally important component in eliminating fully barriers to trade and investment that this agreement seeks to achieve.

Investment

The investment chapter of the Peru TPA is also vital to help promote a secure and predictable legal framework for U.S. investors in Peru, as well as promote Peru’s own economic development. The investment chapter contains the key protections needed for U.S. investment abroad and included in the Trade Promotion Authority legislation, enacted as part of the Trade Act of 2002. These provisions seek to ensure that U.S. investors in Peru have the same levels of protection for their investments that are already available for U.S. and Peruvian investors in the United States, including such important protections guaranteed in the United States through the Takings and Due Process clauses of the U.S. Constitution.

The Peru TPA also includes the investor-state dispute settlement mechanism that is critical to provide U.S. investors the opportunity to ensure full protection of their investments before independent and neutral tribunals. The investment chapter also eliminates major investment barriers to U.S. manufacturers and agricultural and service providers, providing new opportunities to expand U.S. investment, which has important benefits for the United States.

Government Procurement

The Peru TPA also includes a government procurement chapter that will provide major new access to Peru’s government procurement market by U.S. suppliers. Since Peru is not currently a member of the plurilateral Government Procurement Agreement of the World Trade Organization (WTO), this chapter represents an extremely important commitment to open a key market for U.S. manufacturers and service providers.

In particular, the chapter commits Peru to provide national treatment, non-discriminatory treatment, transparent notice and bidding procedures, non-discriminatory technical specifications, penalties for corrupt procurements, and objective domestic review of procurement decisions. These commitments apply to procurements by Peru’s central and sub-central levels of government and certain other government enterprises, with some reservations taken. These commitments are extremely important to many U.S. sectors, including information technology, construction and engineering and others.

These provisions provide U.S. producers new access to Peru’s government-procurement market and strong procedural guarantees to ensure greater fairness and objectivity in Peru’s procurements. In turn, these provisions will help Peru improve the efficiency of its government procurement system, promoting more cost-effective procurements in support of Peru’s own economic and technological development.

Intellectual Property

The Peru TPA includes strong provisions for the protection of trademarks, non-pharmaceutical patents, copyrights, and trade secrets, including through stronger penalty requirements. Such provisions are vital to ensure that the market-access provisions guaranteed in other chapters are not undermined by piracy or by the lack of enforcement of intellectual property rights.

We are disappointed, however, that provisions providing important intellectual property protections for innovative American medicines were weakened in the final agreement, undermining market access for one of America’s most globally competitive industries. These provisions would benefit not only American biotech and pharmaceutical companies developing new medicines, but also Peruvian patients, who would have more rapid access to advanced medicines, and the Peruvian economy, which would attract additional foreign investment through its improved business environment. We support the inclusion of strengthened provisions in future free trade agreements.

Dispute Settlement

The Peru TPA also includes a binding and transparent dispute settlement system that is important to promote full implementation of the agreement in a manner that expands economic opportunities.

Opportunities Created for Peru

While most imports from Peru already receive duty-free treatment under the Andean Trade Preference Act, those preferences are scheduled to expire in February 2008. The Peru TPA expands this duty-free treatment and makes it permanent.

Concerns have been expressed that the Peru TPA will undermine economic progress in Peru 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

With the completion of the Peru TPA, the United States now has the opportunity to approve and 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, while also supporting Peru’s own economic development. It also incorporates key rules on transparency, investment, government procurement and intellectual property that will help ensure that the market liberalization required by the agreement can be achieved. ECAT urges Congressional approval and implementation of the U.S.-Peru TPA as soon as possible.

Attached Document(s): 9-11-07 ECAT Peru Statement.pdf