The Impact of Peru-China FTA--Two Years After its Implementation

【Abstract】This article present a synthesis of the main conclusions and perspectives of the performance of the FTA Peru/China，after analyzing the main features of the trade between both countries，two years before and after the entry into effect of the FTA by March 2010.This article describes the main conclusion of the development of the trade between Peru and China，the tariff reduction as a result of the trade liberalization，the characteristics of the products exported and imported to/from China，the evolution of the number of those products，the main exporting and importing companies;and the perspectives for the next years for both countries under this successful FTA.

【Key words】Trade between Peru and China;FTA Peru/China;Trade liberalization;Tariff reduction;Growth of trade;Chinese and Peruvian investments;Benefits

When evaluating the signing of the FTA between Peru and China， there was a fear of a possible import growth significantly above export.In the estimated feasibility study it was calculated(with a model of partial scope)that exports would grow by 5.40% and imports 30.11%.①the actual development has been much more positive.During the first year of implementation in 2010 of phase one of the FTA tariff reduction，exports to China had an increase of 32% over exports in 2009(USD 4053.34). Such a growth was almost equal to the total growth of Peruvian exports， while imports from China rose 57%.During the second year of the FTA， exports continued increasing by 30%，meanwhile imports increased by 23% over the previous year.Now China had become Peru's main trading partner and concentrates more than 15% of Peruvian shipments，which shows an increase in the participation that China had before the FTA.

The strong growth of trade between both countries and its positive trend even during this last years of financial crisis enables the FTA to qualify as one of the most important trade agreements that has been implemented by Peru.The increased participation of China has been very significant for the key variables of Peruvian foreign trade，as we can review in the below summary table.

After two years of the FTA Peru/China，one of the most successful trade agreements that Peru has to date，Peruvian exports have grown both in traditional and non-traditional.Peru is an exporter of traditional products，especially mining and fishing.Traditional exports to the Asian country，in some cases have presented growths that are on the verge of 50%，depending on the sector or type of product.However，there are also peaks that have reached a growth of over 100%.Nevertheless，the FTA with China has made an increase especially in non-traditional exports， showing that China is not only an important destination for shipments of raw materials，but also for industrial exports，as well as food processing and agriculture products.This fact is very important since non-traditional exports are much more linked with the creation and quality of employment and an increase of the diversification of export products.

A positive dynamism in the evolution of the trade relations between Peru and China can be attributed in great part to the FTA.Great advances in the strategic objectives of Peru's trade policy with China have also been achieved.Peru has strengthened its agricultural，livestock，forestry and fishery exports，changing the participation of export products that were concentrated before only in mining exports. Furthermore，Peru has turned into an investment platform for Chinese investments in the region， especially in agriculture，energy，mining and the infrastructural sectors. Peru has turned into a door or bridge for products between South America and China.

Currently，the composition of domestic shipments remains highly concentrated in copper and its extracts.Fishmeal and minerals such as iron and lead in this structure could be maintained in the coming years， given the need for these raw materials from China.However，there is an increase in products and exporting companies that should be further enhanced in the future，in order to generate a greater diversification of our export supply. Due to the reduction in tariffs，our export supply to China has been expanded，a situation that is reflected both in the increase of number of products exported(from 88 in 2009 to 249 products in 2011)，and the number of exporting firms(from 405 companies to 501 companies in the same period).Many of the companies that are now exporting to China have not exported there before.The FTA between Peru and China has become a relevant mechanism for improving the conditions of access to new products(in particular，in the agricultural and agribusiness sector)， thus this situation will gradually improve when reaching a 100% of tariff reductions negotiated in the FTA，scheduled for 2026.

The FTA has also been beneficial to our Chinese partners.They have widely expanded their presence in the country with a variety of products. Currently，Peru is a significant trading partner for China，in many areas. The majority of all consumption goods，as well as capital goods are imported from China(surpassing the imports from EU or U.S.)，at the national scenery，this has been observed withelectronic and automotive products，as well as with telephone，computer and audio equipment. Larger imports from China have without a doubt benefited the national consumer. Thanks in part to the low prices of these products;these can be acquired by a larger proportion of Peruvian citizens.

The catastrophic forecasts for the Peruvian national economy resulting from an FTA with China have been diluted.The economic and trade relations between Peru and the Republic of China are strongly progressing under the FTA and should be further developed. This is an FTA that passed the test of transparency of the WTO in 2011.It was highlighted as a positive message about the commitment of both countries in favor of openness and against trade protectionism，and presented as an example of negotiation for other countries wishing to sign agreements with China. The signing of the FTA has been a historic step for Peru and the corollary of a process of closer bilateral ties that since 2008 has rose to the level of \"strategic partners\".

The FTA Peru/China is a very positive agreement that opens a series of opportunities for growth and diversification，which facilitates on one hand the generation of employment，and on the other hand，makes possible a better satisfaction of the consumer needs.This FTA is a modern agreement that includes negotiations in the area of Services，Temporary Entry and Investments，unlike the FTA Chile/China，in which the mentioned areas were not included but negotiated and separated in individual agreements.This Trade Agreement together with the Customs Cooperation Agreement that was also signed between both countries are very good instruments and great examples of the dynamic bilateral relationship between Peru and China.Furthermore，the FTA with China is one of the agreements that Peru implements with countries belonging to the major economic areas of the world，and this has protected Peru during the global crisis affecting the world.

In the most likely immediate scenario，China would continue to increase their imports from the world and from Peru(in August 2010 imports of China increased 35% and 11% copper in quantity).It will be a necessary effort to expand the export basket and achieve the increase of the consumption capacity of the Chinese families favors some Peruvian products.Peru in turn will continue increasing their purchases of consumption goods in China，but also its purchase of intermediate and capital goods.The Peruvian government's goal for 2016 is to triple non-traditional exports therefore they would have to be in a ratio above 30%. While traditional exports would present a progress between 26 and 27 % by the end of the year 2012，imports from China may fall and the country would continue to export at rates that exceed 25 or 28 percent annually. These facts are confirmed by the World Bank projections and the International Monetary Fund，that claims that figures for China would be in blue and for Peru would show a growth in exports by over 20 percent as mentioned in above lines.

In times of crisis，a country that has the competitiveness of Peru ends up being a better provider than others countries that do not. Nevertheless， China has also increased its importance as export destination among other Latin American countries and in some extent it is likely to insinuate a dynamic competition among the countries in the region to conquer the growing Chinese market.In 2011 China was the main export destination for Brazil and Chile and the second destination for Argentina，Costa Rica and Cuba.Furthermore，Chile was the first country to have an FTA with China， while Peru was the second one. In 2010 negotiations for a FTA with Costa Rica were started，and other countries could be added in the future，which implies that now there are new challenges for efforts to improve competitiveness， for Peru，for South America and for all Latin American countries.