10:41 | Washington D.C., Aug. 23.
The Peru-U.S. Trade Promotion Agreement (PTPA) represented a watershed for Peru’s economic policies and institutions, the Ambassador of the Peru to the U.S. Luis Miguel Castilla affirmed.
The PTPA required nearly 100 new laws in order to be implemented— significantly strengthening its domestic infrastructure and institutions in the process.
It both reinforced Peru’s legal stability and contributed to an enhanced country risk classification. As of May 2015, Peru tied with Mexico for the second-highest investment rating in Latin America, behind only Chile. The PTPA also led to a greater degree of economic specialization and greater efficiency in the allocation of capital and labor. Moreover, the integration of previously informal economic sectors into the mainstream led to further structural benefits.
As a result of the Peru-U.S. agreement and other FTAs, public support for free trade in Peru is high. But perhaps the most notable result is the strengthening of Peru’s entrepreneurial culture. The agreements have generated complex supply chains that serve major enterprises, leading to the rise of small- and medium enterprises (SMEs). Of the 8,032 businesses that exported abroad in 2014, 6,200 were SMEs, Mr. Castilla wrote in an article published by Americas Quarterly.
"This is a significant development, given that 99.8 percent of Peruvian businesses are SMEs and that SMEs account for nearly 81 percent of employment in Peru. In this regard, FTAs help strengthen supply chains by streamlining SME business practices. They also spur innovation and entrepreneurship," he stated.
However, Peruvians know that in today’s fast-paced global environment, the country cannot rest on its achievements. Significant reforms remain necessary for Peru to increase its competitiveness and fully take advantage of the many opportunities created by its FTAs.
Perhaps the most pressing challenge is tackling inefficient bureaucratic structures that reduce labor market efficiency. Some 80 percent of Peru’s SMEs remain unregistered—representing an informal economy that continues to cost in efficiency and productivity and is a drag on the potential growth rate. Addressing these challenges will help Peru take the next major step in its international trade policy, exploiting the advantages represented by the Pacific Alliance.
Established in 2011, the Pacific Alliance is the most dynamic integration initiative in the region. Linking Peru, Chile, Colombia, and Mexico (as of this writing), it aims to foster an open and nonexclusive integration process among countries that share a common vision of trade-led development. The alliance is a cornerstone of Peru’s inclusive foreign policy of open regionalism. It is non-ideological and complementary to—rather than competitive with—other regional bodies.
The Pacific Alliance is intended to create an area of deep economic integration that will progressively establish the free circulation of goods, services, capital, and persons. As a platform for economic and trade integration with the rest of the world, particularly the Asia-Pacific region, it will not only promote the growth, development and competitiveness of its four member countries, but allow each to reduce socioeconomic inequality and achieve greater social inclusion.
In 2012, a year after its launch, Pacific Alliance members concluded a Framework Agreement. Two years later, following extensive and successful negotiations, the presidents of Pacific Alliance countries signed an additional protocol, which, upon entry into force, will immediately eliminate 92 percent of tariffs among the four member countries. The remaining 8 percent of tariffs will be progressively phased out in the medium term, he indicated.
The Pacific Alliance represents a significant opportunity for businesses throughout the Americas. Together, Peru, Chile, Colombia, and Mexico form the eighth largest economy in the world, with a combined GDP of roughly $2.2 trillion and a population of 214 million (Latin America’s overall combined GDP was an estimated $5.6 trillion in 2014). In recent years, alliance members have greatly outperformed many other countries in the region. Even with deceleration in 2014, the bloc’s 2.9 percent average annual economic growth was the third most dynamic in the world among large economies, falling behind only China and India.
Furthermore, Pacific Alliance countries attracted 45 percent of foreign direct investment flows to Latin America. While the bloc accounts for 36 percent of Latin America’s population and 38 percent of its total GDP, it accounts for nearly half of the region’s imports and exports. In the next decades, the Pacific Alliance is expected to be among the four economies that will most contribute to global GDP growth, following China, India and the United States.
Article made possible thanks to information provided by the Embassy of Peru in the U.S.
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Published: 8/23/2015