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Cablegate: Peru National Trade Estimate Report 2009

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RR RUEHWEB

DE RUEHPE #1813/01 3231524
ZNR UUUUU ZZH
R 181524Z NOV 08
FM AMEMBASSY LIMA
TO RUEHC/SECSTATE WASHDC 9627
INFO RUEHAC/AMEMBASSY ASUNCION 2077
RUEHBO/AMEMBASSY BOGOTA 6149
RUEHBR/AMEMBASSY BRASILIA 7991
RUEHBU/AMEMBASSY BUENOS AIRES 3543
RUEHCV/AMEMBASSY CARACAS 1283
RUEHMN/AMEMBASSY MONTEVIDEO 9630
RUEHQT/AMEMBASSY QUITO 2186
RUEHSG/AMEMBASSY SANTIAGO 2067
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RHEBAAA/DEPT OF ENERGY WASHINGTON DC
RUCPDOC/USDOC WASHDC

UNCLAS LIMA 001813

SIPDIS

PLEASE PASS TO USTR/GBLUE; EB/TPP/BTA

E.O. 12958: N/A
TAGS: ASEC ECON EINV PGOV

SUBJECT: PERU NATIONAL TRADE ESTIMATE REPORT 2009

REF: SECSTATE 88447

1. (U) In response to State 88447, Embassy Lima reports the
following update for its National Trade Estimate Report. This
report has also been sent as a Word document with track changes to
USTR by email.

2. (U) TRADE SUMMARY

The 2008 data is current as of August 2008. The U.S. goods trade
deficit with Peru was $327 million, a decrease from $1.1 billion in
2007. U.S. goods exports in 2008 were $4.3 billion, up from $4.1
billion in 2007. Corresponding U.S. imports from Peru were $4.0
billion in 2008, a decrease from $5.2 billion in 2007. Peru is
currently the 40th largest export market for U.S. goods.

The stock of U.S. foreign direct investment (FDI) in Peru was $6.8
billion in 2007 (latest data available), up from $5.0 billion in
2006. U.S. FDI in Peru is concentrated largely in the mining sector.


3. (U) UNITED STATES - PERU TRADE PROMOTION AGREEMENT (PTPA)

The United States and Peru signed the United States-Peru Trade
Promotion Agreement (U.S.-Peru TPA) on April 12, 2006. The Peruvian
Congress ratified the Agreement in June 2006, and a protocol of
amendment in June 2007. On December 14, 2007, President Bush signed
the United States-Peru Trade Promotion Agreement Implementation Act.
The Agreement will enter into force after Peru has taken the
necessary steps to implement its obligations.

4. (U) IMPORT POLICIES

Tariffs

Peru applies tariffs to virtually all goods imported from the United
States with an average applied rate of 10 percent. Most imported
goods are subject to tariff rates which range from 4 percent to 20
percent. There is an additional 5 percent "temporary" tariff
surcharge on many agricultural goods. Peru has also applied a price
band or variable levy on the following sensitive agricultural
products: rice, corn, sugar, and dairy products. However, in 2007,
the GOP took steps to address the rising prices of food commodities
and eliminated most import duties on food items and agricultural
inputs. This has contributed to slowing inflation pressures on food
products earlier in 2008 when global commodities prices spiked.

Under the PTPA, 80 percent of U.S. exports of consumer and
industrial products will become duty free immediately upon entry
into force of the agreement. Within 5 years, an additional 6 percent
will become duty free and another 4 percent within 7 years. Duties
on the remaining 10 percent will be phased out over 10 years. Peru
is in the process of joining the World Trade Organization (WTO)
Information Technology Agreement, removing tariffs and nontariff
barriers to information technology products.

In addition, more than two-thirds of current U.S. farm exports to
Peru will become duty free immediately upon entry into force of the
PTPA, including high quality beef, cotton, wheat, soybeans and
soybean products, key fruits and vegetables, almonds, and many
processed food products. Peru also will immediately eliminate its
price band system on trade with the United States. These benefits,
coupled with a preference clause included in the PTPA, will enable
the United States to better compete with countries, both within and
outside of the region, for Peru's market. Tariffs on other
agricultural products will be eliminated gradually, most within 5
years to 15 years. Within 17 years, all U.S. agricultural exports
will enter the Peruvian market duty free.

Nontariff Measures

The government of Peru has eliminated many nontariff barriers, and
under the PTPA will subject remaining measures, including subsidies
and import licensing requirements, to additional disciplines. Peru
currently restricts imports of certain used goods, including used
clothing and shoes (except as charitable donations, which are
subject to the 19 percent value added tax), used tires, cars over 5
years old and heavy trucks (weighing three tons or more) over 8
years old. Used cars and trucks that are granted import permits must
pay a 45 percent excise tax - compared to 20 percent for a new car -
unless they are refurbished in an industrial center in the south of
the country after importation, in which case they are exempted
entirely from the excise tax. Additionally, Peru's prohibitions on
the importation of used goods apply to U.S. remanufactured goods.
Under the PTPA, Peru affirmed that it would not adopt or maintain
prohibitions or restrictions on trade in remanufactured goods, and
that certain existing prohibitions on trade in used goods would not
apply to remanufactured goods. Upon entry into force of the
Agreement, this commitment will provide new and significant export
opportunities for firms involved in remanufactured products such as
engines, automotive parts, mining and construction equipment,
transportation machinery, medical equipment, and computers.

For textile and apparel products and footwear, Peru requires that
products bear a label that, in addition to the name of the
manufacturer, includes the name and address of the importer or
distributor. Industry reports that such information is difficult if
not impossible to know during the manufacturing process when
permanent labels are attached. The re-labeling of products upon
entry to meet these requirements results in additional costs and
delays.

In 2006, the United States Government and the government of Peru
resolved a number of significant sanitary and phytosanitary (SPS)
and technical standards issues. Specifically, the two governments
reached agreements addressing Peru's bans or restrictions on imports
of U.S. beef and beef products (related to Bovine Spongiform
Encephalopathy), poultry and poultry products (related to avian
influenza), pork and pork products, and rice. The government of Peru
has implemented these agreements through a series of resolutions and
decrees. For example, in October 2006, Peru issued a Supreme Decree
permitting the importation of all U.S. beef and beef products,
except high risk materials, when accompanied by a sanitary
certificate issued by the U.S. Department of Agriculture's Food
Safety and Inspection Service. In addition, Peru formalized its
recognition of the equivalence of the U.S. meat and poultry
inspection systems, and eliminated a rice quality standard that
discriminated against imports of U.S. rice. Restrictions still exist
with regard to trade in live cattle. U.S. officials continue to
engage Peruvian authorities in pursuit of science-based import
requirements with respect to such trade.

5. (U) GOVERNMENT PROCUREMENT

Since 2002, Peru has applied a 20 percent price preference to bids
by Peruvian firms on government procurement contracts. The PTPA will
require the use of fair, nondiscriminatory, and transparent
procurement procedures for procurement covered by the PTPA. Under
the PTPA, U.S. suppliers will be permitted to bid on the procurement
of most Peruvian central government entities, including state owned
enterprises such as Peru's oil company and Peru's public health
insurance agency. When the PTPA is implemented, the price preference
will no longer be applied to U.S. companies in procurement covered
by the PTPA. The anti-corruption provisions in the PTPA will require
each government to ensure under its domestic law that bribery in
trade-related matters, including in government procurement, is
treated as a criminal offense or is subject to comparable penalties.
Peru is not a signatory to the WTO Agreement on Government
Procurement.

6. (U) INTELLECTUAL PROPERTY RIGHTS (IPR) PROTECTION

Peru's implementation of the provisions in the PTPA's IPR chapter
will bring about a number of important improvements in IPR
protection, including: protection of trademarks used in Internet
domain names; strengthened measures to prevent the circumvention of
technological devices for preventing Internet-based copyright
piracy; protection of test data and other undisclosed information
submitted in connection with regulatory approval for pharmaceutical
and agricultural chemical products; and provision of deterrent
penalties against piracy and counterfeiting.

There have been government efforts to improve enforcement, including
increased raids on large-scale distributors and users of pirated
material, but piracy remains a problem. U.S. industry has called for
increasing anti-piracy efforts in Peru with enhanced support from
the Peruvian National police, and increased coordination between
Peru's copyright office (INDECOPI) and local municipalities in order
to revoke licenses granted to vendors selling pirate products.

Patents and Trademarks

Peru's 1996 Industrial Property Rights Law provides the framework
for patent protection. In 1997, Peru addressed several
inconsistencies with the WTO TRIPS Agreement provisions on patent
protection and Most Favored Nation treatment for patents. U.S.
industry representatives are pleased that INDECOPI has shifted the
burden of proof in patent infringement cases from the patent holder
to the alleged copier. INDECOPI has issued preliminary injunctions
against presumably illegal copies and in 2006, U.S. pharmaceutical
companies won several important patent infringement court cases.
However, the U.S. pharmaceutical and agrochemical industries
continue to have concerns about Peru's protection of undisclosed
test and other data submitted in connection with marketing approval
procedures. The PTPA contains provisions to address these concerns.


Enforcement

Despite some Peruvian government efforts to improve enforcement,
including increased raids on large-scale distributors and users of
pirated material, piracy remains widespread, due notably to a
failure to apply deterrent penalties vigorously. The judicial
problems should improve now that Peru has five courts and three
prosecutors' offices that can specialize in IPR cases.

7. (U) SERVICES BARRIERS

Under the services chapter of the PTPA, Peru will assume commitments
to provide nondiscriminatory treatment and market access in a
substantial number of services sectors. These commitments
significantly improve upon Peru's WTO commitments in terms of
sectors covered and elimination of restrictions in sectors such as
advertising, construction and engineering, energy, information,
express delivery, and entertainment, including audiovisual services
and broadcasting. The chapter also commits Peru to increased
regulatory transparency and to free transfers associated with the
supply of a service.

Financial Services

The financial services chapter of the PTPA provides for secure
access and nondiscriminatory treatment across most banking,
insurance and securities sectors, and improves U.S. companies'
ability to provide portfolio advice and certain kinds of insurance
on a cross-border basis.

Telecommunications

Peru is continuing the process of developing a competitive
telecommunications market. OSIPTEL, Peru's telecommunications
regulator, has established a time frame to lower average mobile
termination rates by more than half over a period of 4 years, from
2005 levels of roughly $0.21 to under $0.10 by January 2009. U.S.
companies continue to complain that the rates should be further
reduced and that unconstrained pricing by the dominant supplier has
created significant barriers to competition in the wireless sector.
Continued oversight and review of these rates by OSIPTEL will be
important to achieving progress in addressing concerns raised by
suppliers.

8. (U) INVESTMENT BARRIERS

Under the investment chapter of the PTPA, Peru will assume
obligations relating to national treatment and Most Favored Nation
treatment; assure the right of U.S. investors to make financial
transfers freely and without delay; apply international legal
standards for expropriation and compensation; and provide access to
binding international arbitration.

Peruvian law restricts majority ownership of broadcast media to
Peruvian citizens. Foreigners are also restricted from owning land
or investing in natural resources within 50 kilometers of a border,
but they can operate within those areas with special authorization.
Under current law, foreign employees may not comprise more than 20
percent of the total number of employees of a local company (whether
owned by foreign or Peruvian persons) or more than 30 percent of the
total company payroll. Under the PTPA, Peru has agreed not to apply
most of its nationality-based hiring requirements to U.S.
professionals and specialty personnel.

U.S. firms sometimes complain that executive branch ministries,
regulatory agencies, the tax agency, and the judiciary often lack
the resources, expertise, or impartiality necessary to carry out
their respective mandates. Peru's weak judicial branch is a
particular problem. The resolution of commercial disputes that end
up in Peruvian courts is often delayed, and judicial proceedings can
yield results that are not foreseeable based on a review of relevant
precedents. U.S. investors have also complained about the
reinterpretation of rules and the imposition of disproportionate
fines by the tax agency. Customs procedures and delays have also
been cited as a major concern for U.S. companies importing products
to Peru.

The Peruvian government has tried to address institutional
weaknesses in the executive branch and has also offered plans for
judicial reform. In July 2005, the Supreme Court issued an edict
stating that final binding arbitration awards cannot be disputed in
the domestic judicial system. The U.S. Government has worked with
the government of Peru both before and in parallel with the PTPA
negotiations to ensure the fair resolution of U.S. investor
disputes, consistent with Peruvian law.

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