Both China and the US have intitiated free trade agreements (FTA) with Peru in the last few months. Here’s a quick summary of the agreements and a few unsolicited thoughts:
The China-Peru pact was signed in November 2008, on Chinese president Hu Jintao’s visit to Lima for the Asia-Pacific Economic Cooperation (APEC) summit. Without getting too into the specific terms, there were clear incentives for big business on both sides. For China, though Peru still doesn’t amount to much in terms of an export market, 99% of Chinese goods to Peru will be untaxed in the coming years. Walk down any street in Lima, and it’s hard to miss that Chinese manufacturers are making inroads. Most immediately, the deal will help out giant state-owned mining firms as they mine and export Peru’s copper, iron and zinc.
For Peru, China is its second-largest trade partner, accounting for 9.6% of exports in 2006. All but 10% of Peruvian goods bound for China will tax-free soon.
Arriving at the terms of the China-Peru FTA seemed smooth by the accounts I’ve read. The idea for an FTA was proposed in 2006, negotiations began in early 2008, and by November of that year, Peru rolled out the red carpet for the signing. However, Peru’s textile industry did voice complaints, fearing it would be undercut by its Chinese counterpart.
As for the US-Peru FTA, the process has been a bit rockier. The US Congress agreed to a pact as early as December 2007, but added provisions to ensure Peru fulfill certain labor, environmental and IPR requirements first. The pact, agreed to conditionally, sat on Bush’s desk as pressure (espcially from Congressional Democracts) built against it.
Fast-forward to January 2009. Days before Bush left office, with Peru’s government frantically passing 11th-hour labor and environmental regulations to appease the US, with many in Congress calling for Bush to hold off on signing the FTA, with the Sierra Club and Oxfam America issuing joint statements for the delay of the pact, and with an incoming president who would perhaps stop the FTA from happening indefinitely: Bush and Peruvian president Alan Garcia went ahead and signed the agreement anyway. For a good account of Bush, Garcia and former US Trade Representative Susan Schwab’s “dirty tricks,” click here.
Under the terms, on Sunday, February 1, Peru will expand its duty-free access to the US (which it has had in a different form since 1991), while it will halt duties on 80% of US industrial, mining equipment and farm exports. In other words, US beef, vegetables, wheat and other agricultural products will hit Peru as early as next month. Welcome, Wal-Mart.
Phew!
Now, I’m not really in a position to weigh in about the pros and cons of FTAs or free trade as a whole. What’s interesting to me, is the what these FTAs say about the state of US- and Sino-Peruvian relations.
First, witness how dramatically both countries’ political systems affected the proceedings. It’s almost impossible to imagine China going through the same motions that the US government did – agonizing debate, concerns over the labor and environmental regulatory concerns, etc. The streamlined nature of China’s government means it can hammer out FTAs in a hurry. And it is going to so.
Second, as China combs Latin America for new FTAs (Peru was its second pact, after the one it signed with Chile in 2005), how will this go down with Washington? Given Congresses wishy-washiness over the recent Peru, Colombia and Panama trade treaties, and China’s hunger for them, are we to see a new period of anti-China rhetoric in Washington over Latin America?
Third, if the underhandedness of the US-Peru FTA riles up the few US politians who really care about it, it will be interesting to see what, if anything they can do about it. Signing the FTA despite the objections was one of Bush’s eleventh-hour send-offs. Now that he’s gone, who is really responsible?
In any case, here’s hoping on Monday, I don’t find Idaho potatoes here in the land where they originated.
Images: Chinese Government, Xinhua