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Cablegate: Exports to China Grow, Fta by Late 2008

VZCZCXYZ0006
RR RUEHWEB

DE RUEHPE #2429/01 1972138
ZNR UUUUU ZZH
R 162138Z JUL 07
FM AMEMBASSY LIMA
TO RUEHC/SECSTATE WASHDC 6171
INFO RUEHBO/AMEMBASSY BOGOTA 4874
RUEHBR/AMEMBASSY BRASILIA 7461
RUEHBU/AMEMBASSY BUENOS AIRES 2983
RUEHCV/AMEMBASSY CARACAS 0568
RUEHLP/AMEMBASSY LA PAZ JUL QUITO 1344
RUEHSG/AMEMBASSY SANTIAGO 1384
RUEHBJ/AMEMBASSY BEIJING 0401
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RHEHAAA/NATIONAL SECURITY COUNCIL WASHINGTON DC
RHEFDIA/DIA WASHINGTON DC
RHMFIUU/CDR USSOUTHCOM MIAMI FL

UNCLAS LIMA 002429

SIPDIS

USTR FOR BHARMAN AND MCARRILLO
COMMERCE FOR 4331/MAC/WH/MCAMERON
TREASURY FOR MMALLOY

SIPDIS

E.O. 12958: N/A
TAGS: ETRD PREL USTR APECO CH PE

SUBJECT: EXPORTS TO CHINA GROW, FTA BY LATE 2008

REF: LIMA 330

1. Summary: Peru's exports to China have surpassed those to the
United States for two of the first five months in 2007, making China
an increasingly important factor in Peru's economy. Mined metals
and fishmeal accounted for 90% of Peru's exports to input-hungry
China. By the end of July, Peruvian and Chinese officials expect to
conclude a viability study for the negotiation of a bilateral free
trade agreement (FTA). They estimate that the FTA could be signed
in time for the Lima APEC summit in November 2008. The FTA will
exclude sensitive sectors for both countries: textiles and footwear
for Peru, and agricultural products for China. End Summary.

CHINA TOPS THE U.S.
-------------------

2. Peru's trade with China has been on the rise. Exports to China
grew by 21% in 2006 to $2.3 billion (see reftel), and as of May
2007, exports to China had grown more than 64% compared to the same
period in 2006. Exports to China surpassed those to the U.S.
(Peru's top market) for two months so far this year, totaling $349
and $273 million in March and May, compared to $297 and $258 million
for the U.S.

METALS, FISHMEAL & GRAPES
-------------------------

3. Mined metals dominate Peru's exports to China, led by copper.
Through May, copper exports to China totaled $632 million,
accounting for over 50% of the total $1.2 billion exported to China
this year. Furthermore, four of Peru's top five exports to China
are mined metals (copper, lead, iron, and zinc), which in sum
account for nearly 65% of total exports. China's accelerated growth
rate has triggered a major demand for commodities like copper and
iron, which has resulted in significant price hikes. These factors
have greatly increased Peru's trade with China as well as Peru's
export earnings. China is by far the top importer of Peruvian
copper and fishmeal.

--------------------------------------------- --------
Top Six Peruvian Products Exported to China (Jan-May)
--------------------------------------------- --------
Product 2006 2007 %Change
(in USD millions)
------------------------------------------
Copper Concentrates 229.8 632.1 175.0
Fishmeal 200.4 229.7 14.6
Lead Concentrates 73.9 133.6 80.8
Iron Concentrates 42.1 46.6 10.7
Zinc Concentrates 8.1 41.2 408.6
------------------------------------------
Source: Adex, SUNAT

4. Although Peru's agricultural products do not constitute a
principal export to China, they have also experienced major growth.
For example, grape exports to China through May totaled $1.2
million, a 75% increase from the $736,000 exported during the same
period last year. Peruvian grape crops are planted so that harvests
coincide with the highly profitable Chinese New Year.

DISCUSSIONS UNDERWAY FOR A LIMITED FTA
--------------------------------------

5. President Alan Garcia, recognizing China as a top priority, has
announced his objective to turn Peru into China's main commercial,
economic and social partner in South America. Consequently, at the
end of March, President Garcia and Li Changchun (a member of the
Permanent Committee of the Political Bureau of the Communist Party
of China) confirmed their countries' common interest in negotiating
a bilateral free trade agreement (FTA).

6. A Peruvian delegation has already traveled to China, and a
viability study for the negotiation of the FTA is expected to
conclude this month after the visit of a Chinese delegation to Peru.
Peruvian officials are hoping to formally announce the commencement
of negotiations of the FTA at the September 2007 Asia-Pacific
Economic Cooperation (APEC) summit in Sydney. Peruvian and Chinese
authorities plan to have the FTA ready for signature by the November
2008 APEC summit in Lima.

EXCLUDING SENSITIVE SECTORS
---------------------------

7. The Peru-China FTA is expected to be considerably less ambitious
than the U.S.-Peru Trade Promotion Agreement (PTPA) pending approval
by the U.S. Congress. It will be a commercial agreement which will
exclude sensitive sectors for both sides. These would be textiles
and footwear for Peru, while China will leave out agricultural
products. Peru is hoping for results similar to those achieved by
Chile in their FTA with China, in which sensitive sectors were also
excluded. Since the Chile-China FTA went into effect in July 2006,
exports from Chile to China have increased 143 percent.
STRUBLE

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