On April 12, the
United States and Peru concluded negotiations for the United States-Peru Trade Promotion
Agreement, a major advance in economic and security
relations between the U.S. and Latin America's fifth most populous
country. Peru's legislature has already approved the deal, and it
now awaits action in the U.S. Congress. Economically, this free
trade agreement (FTA) with Peru will benefit producers in both
countries with greater market access and consumers with less
expensive products. From a security standpoint, it will consolidate
a partnership with the seventh largest economy in South
America-critical in a region where opposition to free markets and
U.S. influence is being fed by populist, nationalist governments in
Venezuela and Bolivia. While the FTA commits Peru to improving
labor standards and their enforcement, a lingering misconception
that Peru fails to fully protect workers' rights will make passage
of the agreement contentious. But failure to approve the agreement
would jeopardize U.S. influence in Latin America.
Economic
Benefits
Despite the small
size of Peru's economy relative to the United States', the U.S.-Peru FTA will substantially
benefit consumers and producers in both countries. Peru already
enjoys low barriers for exports to the U.S. market under the Andean
Trade Promotion and Drug Eradication Act (ATPDEA), which will
expire in December 2006. The new FTA will make some of those
benefits permanent while lowering barriers for U.S. exporters and
investors. The U.S. International Trade Commission estimates a
variety of benefits:
U.S. imports from
Peru will increase by $439 million, or 8 percent, and U.S. exports
to Peru will increase by $1.1 billion, or 25 percent;
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The largest
value increases in U.S. exports will be in machinery and electrical
equipment, chemicals, rubber, plastics, wheat, rice, pork, and
poultry;
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Trade
facilitation provisions, such as the definition of custom
procedures, administration, and dispute, will lead to a more stable
and reliable trading environment, further buttressing U.S.-Peru
trade and investment; and
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The protection
of intellectual property in Peru, through new rules Peru commits to
under the agreement, will be significantly improved.
Security at
Stake
After only Chile and Colombia, Peru is an
important democratic ally in South America's Andean region. It
trades nearly $6 billion in goods and services annually with the
United States and cooperates in combating illegal drug
trafficking.
Under outgoing President Alejandro Toledo,
Peru has enjoyed five years of peace and prosperity. Steady GDP
growth of 5 percent per year helped balance accounts and reduce
poverty by a few percentage points. However, as in all Andean
countries except Chile, poverty still afflicts about half the
population. Peru needs a more skilled workforce, stronger rule of
law, a reduction in burdensome regulations, and a commercial code
that helps the poorest of citizens start a business as easily as
the richest. The FTA will advance these objectives.
On June 4, Alan García won the Peruvian
presidency over Lieutenant Colonel Ollanta Humala in a runoff
election. Humala is an admirer of Venezuela's Hugo Chávez,
and so his loss represents a setback for Chavez's leftist agenda
for the region. But Humala's strong showing demonstrates that his
plans to nationalize industries and boost business taxes to fund
social spending appeals to many Peruvians as the best answer to
blocked social and economic advancement. The FTA will provide
incentives for Peru to become more competitive and thus less likely
to succumb to authoritarianism and closed markets. For U.S.
interests in the region, this is critical.
The Right Approach
on Labor Standards
The U.S.-Peru FTA fully meets the labor
objectives set out by the U.S. Congress in its Trade Promotion
Authority legislation. Labor obligations are part of the core text
of the FTA. It specifies that
both workers and employers must have adequate access to tribunals
to enforce labor laws and that proceedings be fair, equitable, and
transparent. It establishes a
bilateral Labor Affairs Council so that the countries may cooperate
to improve labor standards. Further, the FTA imposes monetary fines
and loss of preferential trade benefits should a party fail to
enforce its own labor regulations. This obligation is enforceable
through the FTA's dispute resolution procedures.
Beyond that, Peru
is already making progress in addressing concerns over its labor
standards:
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Peru's
constitution guarantees freedom of association, collective
bargaining, and the right to strike;
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Under the Toledo
administration, Peru enacted laws to reduce the number of workers
needed to form a union and abolished regulations that prohibited
unions from engaging in political activity; and
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Peru is a member
of the International Labor Organization (ILO) and, as such, has
ratified the eight core ILO conventions.
Conclusion
The 9/11
Commission concluded that a
comprehensive strategy to counter terrorism and enhance U.S.
security "should include economic policies that encourage
development, more open societies, and opportunities for people to
improve the lives of their families and to enhance prospects for
their children's future." The United States-Peru Trade Promotion Agreement
advances those goals, as well as economic growth and prosperity in
both countries.
Ana Isabel Eiras is
Senior Policy Analyst for International Economics in the Center for
International Trade and Economics, and Stephen Johnson is
Senior Policy Analyst for Latin America in the Douglas and Sarah
Allison Center for Foreign Policy Studies, a division of the
Kathryn and Shelby Cullom Davis Institute for International
Studies, at The Heritage Foundation.