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UNCLAS SECTION 01 OF 04 LIMA 000145 
 
SENSITIVE 
SIPDIS 
 
STATE PASS USTR HARMAN AND CARRILLO 
 
E.O. 12958: N/A 
TAGS: ETRD ECIN ECON PREL PE
SUBJECT: PERU'S TRADE AGENDA: REACHING ACROSS THE GLOBE 
 
LIMA 00000145  001.2 OF 004 
 
 
SUMMARY 
------- 
¶1. (U) In 2008, Peru made significant strides towards 
diversifying its trading partnerships.  Peru signed trade 
agreements with Canada and Singapore and concluded 
negotiations with the European Free Trade Association (EFTA). 
 Visits by leaders participating in the European Union - 
Latin American and Caribbean Summit (EU-LAC) and the Asia 
Pacific Economic Cooperation (APEC) meetings jump-started 
stalled action on agreements with Thailand, Chile, Mexico, 
and the European Union (EU).  In all four cases, Peru's 
leaders remain hopeful that the agreements will enter into 
force in 2009.  Peru advanced on trade agreements with Japan 
and China during Peruvian President Alan Garcia's visit in 
the early part of 2008.  Initial discussions led to quick 
action, including an announcement during the APEC meetings of 
the start of trade negotiations with South Korea.  Peru 
continues to seek agreements reaching across the globe to 
Europe, Asia, and Africa. 
 
CANADA  - FTA DESIGNED TO PROMOTE ECONOMIC GROWTH 
--------------------------------------------- ---- 
¶2. (U) On May 31, 1999, the countries of the Andean Community 
(Bolivia, Colombia, Ecuador, Peru, and Venezuela) signed a 
Trade and Investment Cooperation Agreement (TICA) with the 
Government of Canada.  On August 7, 2002, the Government of 
Canada announced its intentions to begin preliminary talks 
with the members of the Andean Community on a possible Free 
Trade Agreement (FTA).  Subsequently, Canada, Colombia, and 
Peru announced the launch of bilateral negotiations on June 
7, 2007.  On January 26, 2008, after three rounds of 
negotiations Canada and Peru concluded their agreement.  On 
May 29, 2008, during APEC meetings held in Peru, the two 
counties signed an FTA.  The FTA will likely enter into force 
in early 2009.  Upon entry-into-force, Peru will remove 
tariffs on 95 percent of Canadian exports.  Peru will remove 
tariffs on the remainder over a five to ten year period. 
Canada will immediately remove tariffs on 97 percent of 
Peruvian imports and will phase out the rest over a three to 
seven year period.  Peru and Canada also signed cooperation 
agreements on labor and the environment.  Two-way commerce 
between Peru and Canada totaled $2.45 billion in 2007.  Peru 
primarily imports cereals, leguminous vegetables, paper, 
technical instruments and machinery and exports gold, zinc, 
copper, ores, oil, animal feed and vegetables from Canada. 
 
¶3. (U) The Peru FTA represents Canada's fourth free trade 
agreement in the Americas.  The agreement will benefit the 
mining, energy, manufacturing, agricultural, and professional 
services sectors.  The agreement encourages and protects 
Canadian investment in Peru with greater stability and 
transparency for investors.  The accumulated stock of 
Canadian investment in Peru is approximately $1.8 billion. 
Canada will grant Peruvian businesses improved market access 
to their market which will support further economic growth 
and poverty reduction in Peru.  For the first time in a 
Canadian FTA, Canada will support Peru with trade-capacity 
building. 
 
SINGAPORE  - HUB TO ASIA 
------------------------ 
¶4. (U) Peru began negotiations with Singapore in 2004 during 
the APEC Leader's Week in Santiago, Chile.  The first of four 
rounds of negotiations took place two years later in 
Singapore.  On August 27, 2007, Peru and Singapore concluded 
their bilateral negotiations.  They signed the agreement on 
May 30, 2008, during APEC meetings held in Peru.  The 
agreement will likely enter into force in 2009.  Parties 
consider this to be a broad based and comprehensive 
agreement.  Immediately upon entry into force, over 87 
percent of Singapore's exports to Peru will benefit from 
duty-free treatment, with the remaining tariffs to be phased 
out over a ten year period.  All Peruvian exports will be 
given instant tariff-free status to Singapore. Peru primarily 
imports electronics and exports minerals and copper wire to 
Singapore. 
 
¶5. (U) Upon the signing of the agreement, President Garcia 
remarked that the agreement will test the capacity and 
ability of Peruvian industry to export its diverse products 
 
LIMA 00000145  002.2 OF 004 
 
 
to the Asian market.  Singapore controls one of the central 
ports for products entering the region.  Peru hopes that this 
agreement facilitates the entry of Peruvian products to the 
whole of Asia.  In return, Peru hopes to serve as a port of 
entry for Asian products to South America. 
 
EFTA - MACHINERY AND DRUGS FOR FISH PRODUCTS AND ZINC 
--------------------------------------------- -------- 
¶6. (U) On April 24, 2006, Peru and the European Free Trade 
Association (EFTA -- Sweden, Norway, Iceland, and 
Liechtenstein) signed a Declaration on Cooperation.  The 
Declaration's objectives were to enhance economic relations 
and to establish a framework for the expansion, 
diversification, and liberalization of trade and investment. 
On June 4, 2007, Peru and the EFTA States announced their 
decision to launch free trade negotiations.  Peru and the 
EFTA States held three rounds of negotiations with 
negotiations formally concluding on October 31, 2008.  Peru 
will eliminate tariffs on trade with EFTA States.  Peru 
imports from the EFTA States machinery, pharmaceuticals, and 
instruments.  Peru exports to the EFTA States fish waste, 
fats and oils and zinc. 
 
THAILAND - GATEWAY TO ASEAN 
--------------------------- 
¶7. (U) Peru and Thailand initiated talks towards expanding 
trade relations in July 2002.  In October 2002, Peru and 
Thailand agreed to set out a framework agreement for a 
bilateral free trade agreement.  On October 17, 2003, Peru 
and Thailand signed a Framework Agreement on Economic 
Cooperation initiating negotiations for a free trade 
agreement.  The Peruvian Congress ratified the agreement on 
December 3, 2004, and promulgated it on December 23, 2004. 
The Government of Thailand ratified the agreement on October 
18, 2005.  After seven rounds of negotiations, on November 
19, 2005, the parties signed a protocol to accelerate the 
liberalization in trade in goods and trade facilitation. 
They signed an additional protocol in November 2006. Between 
2006 and 2008, progress on the agreement stalled.  Then, 
during the APEC meetings held in November 2008, the leaders 
announced that the agreement will likely enter into force in 
¶2009. 
 
¶8. (U) Thailand hopes to count on Peru as a gateway for trade 
in South America.  In return, Peru hopes to rely on Thailand 
as a gateway for trade with the Association of Southeast 
Asian Nations (ASEAN).  Thailand enjoyed a trade surplus with 
Peru in 2005 and 2007.  The trade agreement is expected to 
increase trade by approximately 35 percent.  Key imports from 
Thailand include vehicles and parts, plastic pellets, washing 
machines, refrigerators, rubber products, and rice.  Peru 
exports to Thailand include zinc, copper, and fish meal. 
 
CHILE - BUILDING A STRONGER ECONOMIC PARTNERSHIP 
--------------------------------------------- --- 
¶9. (U) Chile and Peru signed a free trade agreement on August 
22, 2006.  This agreement replaced the text, annexes, and 
protocols of Economic Complementation Agreement (ACE) No. 38 
(registered with the Latin American Integration Association 
as AAP.CE.No.38), which the Parties signed on June 22, 1998, 
and which entered into force on July 1, 1998.  In 2004, Chile 
and Peru initiated talks to renegotiate this agreement with a 
view to deepening their trade relations.  On February 17 
2005, the Second Protocol to ACE No. 38 provided for the 
shortening of the tariff reduction period originally set out 
in the agreement.  Action on the agreement stalled over a 
maritime border dispute between Chile and Peru.  In early 
2008, the Chilean Congress removed the agreement from its 
"fast track" procedures.  The Chilean Congress ultimately 
passed the agreement in December 2008 and January 2009. 
Subsequently, during a meeting with Chilean President 
Michelle Bachelet and Peruvian business leaders, participants 
announced that the agreement would likely enter into force 
March 1, 2009. 
 
¶10. (U) Peru is the primary destination for Chilean foreign 
investment.  The agreement seeks to promote equal development 
and harmony between the two countries by intensifying and 
expanding the economic and commercial relationship through 
product diversification, protection of migrant workers 
 
LIMA 00000145  003.2 OF 004 
 
 
(primarily a Peruvian issue), and building joint venture 
partnerships to enter more competitively into the Asian 
market. 
 
MEXICO - HOPE AN AGREEMENT WILL BE REACHED 
------------------------------------------ 
¶11. (U) Peru and Mexico share an Economic Complementation 
Agreement (ACE No. 8).  The expiration date for the agreement 
has been extended numerous times as a result of stalled 
negotiations over a free trade agreement.  Agricultural 
issues remain the primary reason for the failure of the two 
countries to reach a free trade agreement. During his visit 
to Peru in November 2008 for the APEC Leader's Week, Mexican 
President Felipe Calderon  remarked that the two countries 
will likely reach an agreement in early 2009. 
 
EUROPEAN UNION - AGREES TO BILATERAL NEGOTIATIONS 
--------------------------------------------- ---- 
¶12. (U) In June 2008, the European Union (EU) decided to 
suspend the fourth round of negotiations with the Andean 
Community (CAN).  In October 2008, due to differences in 
negotiating speed with Ecuador and Bolivia, the EU announced 
it would pursue bilateral negotiations with Peru and 
Colombia.  However, the EU still anticipates a bloc to bloc 
agreement in the future.  Representatives from the EU and 
Peru anticipate the conclusion of negotiations by June 2009. 
The sides plan three, possibly four, rounds of negotiations 
for the first half of 2009.  Exports from the Andean 
Community bloc to the EU totaled $1.1 billion in 2007, mostly 
consisting of raw materials and farm goods. 
 
CHINA - PERU'S NO. 2 TRADING PARTNER 
------------------------------------ 
¶13. (U) In March 2008, President Garcia traveled to China and 
Japan to discuss the possibility for free trade negotiations. 
 During the China visit, President Garcia signed a Convention 
on Economic and Technical Cooperation, a Memorandum of 
Intention for the Promotion and Development of Investments in 
Minerals, Hydrocarbons, and Electricity, and an Agreement on 
Judicial Cooperation in Civil and Commercial Areas.  The 
initiation of negotiations for a comprehensive trade 
agreement between Peru and China followed the visit.  In May 
2008, the Peruvian Minister of Foreign Trade and Tourism, 
Mercedes Araoz, announced that she thought Peru might be able 
to complete negotiations with China for a comprehensive free 
trade agreement by the APEC Leader's Week in November 2008. 
On November 20, 2008, President Garcia and Chinese President 
Hu Jintao, announced the conclusion of negotiations. 
 
¶14. (U) Upon entry into force, 61.2 percent of Peruvian 
products will enter China duty-free. Remaining tariffs will 
decrease over a five year period. These products include 
asparagus, paprika, broccoli, dried fruit, palm, pork, and 
fish products.  Minerals represent the largest export to 
China by far.  Peru negotiated equal terms on tariff 
reductions as those negotiated by Chile with China.  For 
example, the tariff rate for grape imports to China currently 
stands at 13 percent.  Chile negotiated a reduction for grape 
tariff rates over time.  Over the last four years, the tariff 
rate for Chilean grapes has decreased to 7.8 percent, and 
ultimately the rate will be zero.  Peru negotiated a 
decreasing tariff rate starting at the current Chilean rate 
of 7.8 percent.  Therefore, Peru will be competitive with the 
Chilean products rather than at a disadvantage.  Peru secured 
a Customs Cooperation Agreement with China as well.  The 
legal review will likely take four to five months.  Peru 
anticipates the agreement entering into force in October 
¶2009. 
 
JAPAN - PARTNER FOR DEVELOPMENT 
------------------------------- 
¶15. (U) While in Japan, President Garcia met with the Emperor 
and the Prime Minister to discuss the possibility of starting 
negotiations for investment and free trade agreements.  In 
December 2008, work on a feasibility study began.  Work on 
the study should finish in February 2009, in time for an 
announcement of the start of negotiations during President 
Garcia's visit to Tokyo for the Peru-Japan trade show.  The 
agreement will include a Cooperation Agreement for 
Sustainable Development. 
 
LIMA 00000145  004.2 OF 004 
 
 
 
KOREA - PERU CONTINUES EXPANSION TO ASIAN MARKET 
--------------------------------------------- --- 
¶16. (U) On November 21, 2008, President Garcia announced the 
initiation of negotiations for a free trade agreement with 
South Korea.  This past year South Korea donated a new 
hospital and health centers in Piura, Peru, as well as 100 
vehicles for security purposes in Lima. 
 
PERU SETS SIGHTS ON FUTURE NEGOTIATIONS 
--------------------------------------- 
¶17. (U) Peru has just started its push to open its market 
place to the global economy.  Over the last year, the 
Vice-Minister for Foreign Trade and Tourism announced plans 
to pursue a trade agreement with Central America in 2009, as 
well as agreements with Russia, Morocco, India, South Africa, 
New Zealand, and Australia in the coming years. 
 
COMMENT 
------- 
¶18. (SBU) The Government of Peru took full advantage of its 
position as hosts to the European Union - Latin American and 
Caribbean Summit (EU-LAC) and Asia Pacific Economic 
Cooperation (APEC) meetings to promote its openness to 
negotiating new agreements and concluding pending ones.  The 
United States has been Peru's number one trading partner for 
decades.  However, Peru has taken strides to diversify its 
marketplace and become less dependent on the United States 
market.  Between 2007 and 2008, Peruvian exports to China 
increased 23.2 percent and to the European Union 9.9 percent, 
while the increase in exports to the United States was 7.3 
percent.  With regard to Peruvian imports, between 2006 and 
2007, China surpassed Brazil to take the number two position 
behind the United States.  In 2008, Chinese imports to Peru 
increased 64.2 percent from the previous year.  U.S. imports 
increased 54.8 percent.  Other notable increases for Peruvian 
imports include a 53.9 percent increase from APEC economies, 
61.3 percent from Japan, and 53.6 percent from the European 
Union.  Peru has a vigorous trade agenda for 2009 and 2010. 
Based on its accomplishments in concluding agreements with 
United States and China, among others, it appears that Peru 
will fulfill this agenda and continue to make strides in its 
quest for trade diversification. 
MCKINLEY