Sunday, April 10, 2011

Peru Expands Economy Through Trade Agreement with Mexico

Bernama: Peru Signs 10th Trade Agreement (FTA) With Mexico

This month Peru continued to expand its international trading capabilities by signing a free trade agreement (“FTA”) with Mexico. Peru now has ten FTAs with the United States, China, and other nations. It will also sign an agreement with the EU by mid-April.

Mexico’s yearly exports exceed $300 billion, while its imports exceed $320 billion. However, Peru’s trade with Mexico accounted for only a negligible percentage of Mexico’s total trading capacity. With the new FTA, Peru hopes to increase the amount of trading with Mexico to tap into Mexico’s large export and import capabilities. Mexico’s population is four times that of Peru’s and will provide a large market for Peru’s exports.

Peru will gain many benefits by trading with Mexico. In the past ten years, trade between Peru and Mexico grew from $414 million to $1.4 billion. With the new FTA, the countries expect this amount to double in the next five years alone. In the first year after the FTA’s implementation, trade between the two nations is expected to increase by 40 percent. Also, the FTA increases Peru’s total market reach to 2.7 billion people.

The Peruvian President stresses the importance of the FTA in recognizing “qualifications and degrees” to allow a greater flow of skilled and educated workers between the two countries. Both countries speak the same language and workers will now be free to pursue their professions in either country because their education will be recognized in both.

Mexico also benefits from the FTA. Trade with Peru creates an estimated 23,000 jobs for Mexican workers. The Mexican Economy Secretary predicts that the increased trade from the FTA will result in the creation of 17,000 more Mexican jobs over the next five years.

Although it accepted the FTA, Mexico still protected some of its domestic interests. It excluded 193 products from the agreement to encourage domestic production. Items such as coffee, dairy products, sugar, beef, chicken, and rice do not fall under the free trade agreements terms because they constitute a large part of the Mexican domestic market. Another contentious aspect of the FTA was agricultural products. However, the two countries agreed to build a solution around seasonal trading. There will be lower tariffs for exporting during certain times of the year when production is high in one country and low in another. This solution will also help keep prices down in the importing country.

This agreement is part of a larger plan by South American countries to jointly reach out to China, which also borders the Pacific Ocean, making shipping between the continents relatively easy. The other countries involved are Chile and Colombia. By integrating trade, South American countries and Mexico intend to bundle together sufficient products to meet the amounts sought by Chinese importers. Mexico and these South American countries hope to become more important global traders by increasing exports to China, which is the world’s second largest economy. The FTAs between them are the first step in increasing their global competitiveness.

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