PRESS
RELEASE
PRESS/TPRB/134
22 May 2000
Peru: May 2000
The consolidation since 1994 of earlier economic reforms has paid off in the form of significant growth in GDP, employment, trade, and foreign investment, as well as of improved social welfare indicators, says a new WTO report on the trade policies of Peru. However, the report highlights the need for Peru to achieve higher rates of growth to increase a still relatively modest GDP per capita (some US$2,500 per person). In this regard, eliminating remaining impediments to greater economic efficiency would be of crucial importance both by enhancing the international competitiveness of Peruvian producers and exporters, and by making Peru more attractive as an investment destination.
Consolidation of trade liberalization and other reforms underpinned economic growth and welfare improvements in Peru
The
new WTO Secretariat report, along with a policy statement
from the Peruvian Government, will serve as a basis for
the second trade policy review of Peru which will take
place in the Trade Policy Review Body of the WTO on 30
and 31 May 2000.
The report notes that Peru carried out major reforms in
the 1990s, including the privatization of most
state-owned enterprises, the establishment of a sound
regulatory framework and the strengthening of the
financial system. Reflecting Peru's generally open trade
regime, total recorded merchandise trade grew at an
average annual rate of 8.5% between 1994 and 1998, the
report says. Trade in services also grew significantly
driven by the economic liberalization process. The report
also notes that the stock of foreign direct investment
increased five-fold since 1993 thanks to the
stabilization process and the establishment of a legal
framework for the promotion and the protection of
investment.
The report states that the United States remains Peru's
principal trade partner both as an export destination and
import source, followed by countries from the Latin
American Integration Association, the European Union and
Japan. Peru exports consist mostly of primary and
semi-processed products, with fishing and mineral
products together accounting for some 60% of total
merchandise exports. As a consequence, Peruvian exports
are exposed to important variability both in terms of
volume and earnings.
The report says that there have been no significant
changes to the general structure of Peru's trade policy
since its last review in 1994. Peru still uses tariffs as
its main instrument of border protection. The average
applied MFN rate was 13.6% in 1999, down from some 16% in
1993. Some 330 agricultural items receive protection
through a 5% or 10% tariff surcharge; of these, 23 are
also subject to variable specific duties providing
open-ended ad valorem protection. The report points out
that the entire tariff is bound but that the wide margin
between applied and bound rates (generally 30%) may
undermine the predictability of the tariff regime.
The report indicates that non-tariff barriers to trade
appear generally low. Anti-dumping has been used
sparingly, and no countervailing or safeguard measures
are in force. However, Peru still maintains certain
local-content requirements and trade-related investment
measures, while government procurement may favour
domestic suppliers. The report notes that the scope and
complexity of fiscal incentives raise concerns, with one
scheme conditional on export performance. Refunds under
Peru's drawback regime are not limited to the actual
amount of import duties paid. A small number of Peruvian
exports are subject to export restrictions, while others
appear to face significant non-tariff barrier in foreign
markets.
The report notes that agriculture is an important sector
in the Peruvian economy, both in terms of output and
employment. Difficult adjustments in this sector have
resulted from the liberalization and reductions in state
assistance initiated in the early 1990s which,
nevertheless, have underpinned strong output expansion
directed at both domestic and foreign markets. However,
the concentration of various border and internal support
mesures in a limited range of favoured products (certain
crops and dairy products) may well hinder further gains
by misallocating labour, land, and capital resources at
the expense of other activities. The report also notes
that driven by international demand, production of coca
leaf and derived products still appears sizeable albeit
declining.
Peru's strategy to attract foreign private investment has
been particularly successful in the mining industry,
which has regained its leading role in the economy. The
mining and energy sectors together attracted just over
one third of total direct foreign investment during
1992-99, says the report. Peru also has a large fishing
industry, which is, however, highly cyclical and suffers
from apparently policy induced over-investment and
over-fishing.
The report indicates that besides the processing of
mineral, agricultural and fisheries products,
manufacturing activities make only a small contribution
to Peru's economy, having experienced extensive
restructuring from increased import competition.
Concerning the services sector, the report mentions that
the Peruvian State used to be a major supplier of
services, including in financial, transport and
telecommunications activities, but that such involvement
has decreased dramatically since the mid 1990s. The
report notes that, in parallel, foreign access to Peru's
services market has improved markedly. Under the WTO's
General Agreement on Trade in Services (GATS), Peru
undertook horizontal commitments with respect to movement
of natural persons and treatment of foreign investment.
Peru's commitments in telecommunication services are
particularly comprehensive.
The report states that Peru takes part in regional
integration schemes within the Andean Community and the
Latin American Integration Association, as well as in the
Asia-Pacific Economic Cooperation forum and the
negotiating groups of the Free-trade area of the
Americas. The report notes, however, that despite Peru's
long-standing participation in the regional integration
processes within Latin America, the share of reciprocal
preferential trade in total trade remains relatively
modest.
In addition to the negotiated schemes, Peru benefits from
increased market access to several countries under
Generalized System of Preferences schemes, particularly
under the special regimes granted by the European Union
and the United States to promote alternatives to coca
cultivation and production.
Notes to Editors
The Secretariat s report:
Back to topsummary
TRADE
POLICY REVIEW BODY: PERU
Report by the Secretariat Summary Observations
Peru's
generally open trade and investment regimes have remained
relatively stable since its previous Trade Policy Review
in 1994. The continued consolidation of earlier,
far-reaching reforms has paid off during the last six
years in the form of significant growth in GDP,
employment, trade, and foreign investment, as well as in
improved social welfare indicators. In the context of the
Uruguay Round, Peru consolidated within the WTO many of
its unilateral liberalization and economic reforms, and
has subsequently enacted or amended domestic regulations
to ensure implantation of its multilateral obligations.
Peru's trading partners have thus benefited from growing
market access for their merchandise exports and services
suppliers.
A still relatively modest GDP per capita (some US$2,500
per person), which in real terms is no higher than in the
mid 1960s, highlights the need for Peru to achieve higher
rates of growth. Eliminating remaining impediments to
greater economic efficiency would be of crucial
importance in this regard both by enhancing the
international competitiveness of Peruvian producers and
exporters, and by making Peru more attractive as an
investment destination. A fresh round of reforms might
include further customs simplification, more even and
predictable tariff protection, the elimination of minor
remaining local-content or export performance
requirements, and greater transparency in support
programmes. Current support for certain agricultural
activities is out of line with the principle of sectoral
neutrality. Pressing forward the privatization and
concession programmes would create new opportunities for
private investments and inject greater competition in the
domestic market.
Economic and Institutional Environment
GDP grew at an average annual rate of 5.6% during
1993-99. Growth, however, has tended to oscillate, with
1998 in particular registering an important slowdown, due
mainly to a series of exogenous shocks. Inflation has
been brought down, and stronger external balances have
allowed international reserves to rise to comfortable
levels. Regaining investor confidence, through the
normalization of relations with external creditors and
debt restructuring, has also been an important ingredient
of Peru's economic recovery.
In the wake of the economic reforms of the early 1990s,
trade and investment flows have increased substantially.
Between 1994 and 1998, total recorded merchandise trade
grew at an average annual rate of 8.5%. Peru's export
supply is concentrated in primary and semi-processed
products, mainly from mining and fishing activities, and
is exposed to sharp fluctuations both in terms of volume
(output variations) and earnings (price variations).
Trade in non-factor services has also grown substantially
since Peru's previous Review, driven by the economic
liberalization process and in parallel with rising
merchandise trade. The stabilization process and the
establishment of a legal framework for the promotion and
the protection of investment has seen the stock of
foreign direct investment increase five-fold since 1993.
There have been no significant changes to the general
structure of trade policy formulation or implementation
since Peru's last Review. The sectoral regulatory
framework has also remained relatively stable, after
earlier, wide-ranging reforms led to the comprehensive
liberalization of sectoral investment rules and an
ambitious privatization programme that saw the State
withdraw from many production activities particularly
during 1994-96. Investors are offered additional
incentives through "law stability agreements",
conditional on meeting minimum investment, job creation
or export performance criteria.
The competition policy framework continues to be
developed with a view to ensuring that consumers benefit
from the liberalization process. Aware of the
interlinkages and the need for consistency between
competition policy and protection of intellectual
property rights and the use of contingency measures,
responsibility for all three areas has been given to a
single agency, INDECOPI.
Trade Policy Developments
The aim of Peru's trade policy is to liberalize the trade
regime so as to provide non-distorting incentives that
allow an efficient allocation of resources and foster the
development of economic activities according to market
signals. Consistent with this aim, Peru uses tariffs as
its main instrument of border protection. The average
applied MFN rate was 13.6% in 1999, down from some 16% in
1993. The tariff is based on a two-level ad valorem
structure applied on the c.i.f. value of imports. In
1997, the two main rates were reduced to 12% and 20%
(from 15% and 25%); simultaneously, tariffs on some 300
agricultural products were increased from 15% to 20%.
Some 84% of all tariff lines are subject to the 12% duty
rate. The entire tariff is bound but the wide margin
between applied and bound rates (generally 30%) may
undermine the predictability of the tariff regime.
Some 330 tariff items involving agricultural products
receive additional protection through a 5% or 10% tariff
surcharge. Of these, 23 items are also subject to
variable specific duties intended as a price
stabilization and protection mechanism. In early 2000,
these duties affected five product groups: milk, maize,
sorghum, rice, and sugar (also wheat products until
1998). As, in effect, variable specific duties provide
open-ended ad valorem protection, concerns arise about
their use undermining predictability, distorting
production and possibly leading to the breach of tariff
bindings.
Peru's basic import formalities have remained essentially
unchanged since its previous Review and in the main
appear to be straightforward. Preshipment inspection,
introduced in 1992 to prevent under-valuation, is still
in use although the range of goods covered has been
reduced. Peru receives technical assistance to implement
the WTO Agreement on Customs Valuation, and was granted a
waiver to delay full implementation until April 2000.
Both preferential and non-preferential rules of origin
are applied, the latter in relation to contingency
measures.
Non-tariff barriers to trade appear generally low.
Anti-dumping measures have been used sparingly, with only
nine measures in force in early 2000, the majority
affecting non-WTO exporters; there are no countervailing
or safeguard measures in force. Peru maintains
local-content requirements in relation to various
government nutrition programmes, as well as a
trade-related investment measure in dairy. A number of
provisions favour domestic suppliers in government
procurement, which is governed by a more transparent
regulatory framework introduced in 1997. Peru is not a
member of the WTO plurilateral Agreement on Government
Procurement.
Regional, sectoral, and social policies make use of
fiscal incentives whose scope and complexity raise some
concern, although amounts involved are relatively small.
Free zones and other special fiscal zones are largely
used for regional development objectives but seem to have
fallen short of their goals; fiscal exemptions provided
under the CETICOS scheme established in late 1996 are
conditional on export performance. Preferential credit to
selected sectors is available from the national
development bank, COFIDE.
Peruvian exports appear to receive limited direct
government support. Peru's drawback regime refunds 5% of
the f.o.b. value of the good exported regardless of the
actual amount of duties paid on imported inputs. Export
restrictions apply on guano, rough wood and certain
animals. Visas are required for textile exports to the
United States, with export restraints on cotton towels.
Under the WTO Agreement on Textiles and Clothing, the
European Union applies quotas to Peruvian exports of
cotton yarns and fabrics. A number of non-tariff measures
implemented in foreign markets (e.g. sanitary and
phytosanitary measures) may also hinder certain other
Peruvian exports.
Sectoral Policy Developments
Since its last Review, Peru has continued to pursue a
sectoral policy approach that emphasizes neutrality of
incentives across activities. Nevertheless, a small
number of activities are still favoured through special
fiscal incentives or tariffs.
In the agricultural sector, liberalization and reductions
in state assistance initiated in the early 1990s have
resulted in difficult adjustments which, nevertheless,
underlie strong output expansion directed at both
domestic and foreign markets. However, the concentration
of various border and internal support mesures in a
limited range of favoured products (certain crops and
dairy products) may well hinder further gains by
misallocating labour, land, and capital resources at the
expense of other activities. Driven by international
demand, production of coca leaf and derived products
still appears sizeable albeit declining.
Peru has a revealed comparative advantage in certain
fishing and mineral products, which together typically
account for some 60% of its total merchandise exports.
Peru has a large fishing industry which is, however,
highly cyclical and suffers from apparently
policy-induced over-investment and over-fishing. Peru's
strategy to attract local and foreign private investment
has been particularly successful in the mining industry,
which has regained its leading role in the economy.
Mining and energy attracted just over one third of total
direct foreign investment into Peru during 1992-99.
Besides the processing of mineral, agricultural and
fisheries products, manufacturing activities make only a
small contribution to Peru's economy; these activities
have experienced extensive restructuring from increased
import competition.
The Peruvian State used to be a major supplier of
services, including in financial, transport, and
telecommunications activities, but such involvement has
decreased dramatically since the mid 1990s. In parallel,
foreign access to Peru's services market has improved
markedly. The ambitious privatization programme and the
general policy of promoting private investment has
induced important structural changes in most service
areas. With respect to privatized public services, the
Peruvian authorities are seeking to establish a strong
regulatory framework in particular to prevent the abuse
of dominant positions in service markets where
competition is limited by technical constrains.
Trade Policy and Foreign Trading Partners
Through its participation in the WTO and regional
initiatives, Peru has tried to enhance access to
international markets so as to generate economies of
scale and specialization. While welcoming the
strengthening of the multilateral trading system and
increased transparency and predictability that followed
the conclusion of the Uruguay Round and the establishment
of the WTO, the Peruvian authorities have noted that in
some areas actual results have not met expectations. In
their view, this is particularly the case in sectors such
as agriculture, textiles, and clothing, and in respect to
new disciplines for the adoption of anti-dumping
measures.
Peru ratified the Marrakesh Agreement Establishing the
WTO in December 1994, which is an integral part of the
Peruvian legislation. Peru has enacted or amended various
domestic regulations to harmonize them with its
international obligations and thus facilitate their
application, in particular in the area of intellectual
property rights. As a result of the Uruguay Round, Peru
bound its entire tariff, compared with previous bindings
on only 460 lines. Peru grants at least MFN tariff to all
partners.
Under the WTO's General Agreement on Trade in Services
(GATS), Peru undertook horizontal commitments with
respect to movement of natural persons and treatment of
foreign investment; although these commitments apply only
to sectors included in its GATS Schedule, in practice
Peru's legislation grants similar market access across
most service activities. Sector-specific commitments
cover 7 out of 12 broad categories of services.
Reflecting Peru's legislation, market access and national
treatment for services supplied through commercial
presence (i.e. treatment granted to foreign investment)
has been in general fully committed. Peru's commitments
in telecommunication services are particularly
comprehensive, with all services bound except for the
granting of national treatment in relation to the
presence of natural persons.
In parallel with its participation in the multilateral
trading system, Peru takes part in regional integration
schemes within the Andean Community and the Latin
American Integration Association, as well as in the
Asia-Pacific Economic Cooperation forum and the
negotiating groups of the Free Trade Area of the
Americas. Despite Peru's long-standing participation in
the regional integration processes within Latin America,
the share of reciprocal preferential trade in total trade
remains relatively modest. In addition to the negotiated
schemes, Peru benefits from increased market access to
several countries under Generalized System of Preferences
schemes, including under the special regimes granted by
the European Union and the United States to promote
alternatives to coca cultivation and production.
According to the Peruvian authorities, these schemes have
resulted in substantial export diversification.
Government report
TRADE
POLICY REVIEW BODY: PERU
Report by the Government - Part I and II