President Alejandro Toledo called on George Bush on September 21 in a bid to speed up Peru’s attempts to engineer a free trade agreement (FTA) between three of the Andean countries (Peru, Ecuador and Colombia) and the United States. With the US presidential elections just over a month off, Toledo’s appeals for better treatment for Peru’s exports to the United States may be drowned out by the noise of domestic US politics. Still, if eventually passed by the next US Congress, it will have a determinant effect on Peru’s relations with Washington.
In Peru itself, the impact of free trade with the United States has not had the hearing that it deserves. Much of the running has been made by those supporting free trade, no matter what. Not surprisingly, those keenest on trade liberalisation are those that stand to gain by it. They include both sectors of the export community, as well as major importers of goods and services from the United States. Examples of the former include exporters of products like asparagus and mangoes, products for which Peru is keen to find new foreign markets. The latter include firms that import US wheat and technology.
The main argument of those in favour is that Peru needs to negotiate a successor agreement to the Andean Trade Preferences/Drug Eradication Act (ATPDEA), which expires in 2006. Under the ATPDEA, Peru won some significant trade concessions that have benefited some exporters of textiles and clothing. ATPDEA concessions, however, are dependent on Peru playing ball in the war against drugs. An FTA would not involve such conditionalities, although there would still be other ways for the US to invoke trade sanctions against Peru were it deemed ‘non-collaborating’ on the drugs front.
The campaign against the FTA has made much less headway. In large part, this is because those who will suffer from further trade liberalisation do not have much of a ‘voice’ and therefore find it difficult to make themselves heard. They include domestic producers of goods that are unable to compete with cheap US imports. Nowhere is this more of a problem than in the production of agricultural staples. Peruvian producers of grains, for example, cannot compete with the highly mechanised and highly subsidised production and export of grains from the United States.
Increased purchases of imported wheat will further depress agricultural prices in Peru and accelerate the already rapid substitution of traditional Andean grains in people’s diet. Those who will suffer the trade effects, therefore, are among the poorest sectors of Peruvian society. But poor producers in Peru find it difficult to make their case heard.
The FTA also will have important effects in the investment sphere. As with other FTAs elsewhere, like NAFTA, it will include stricter guarantees about the treatment of foreign investments in Peru, including tough terms that effectively preclude tighter state controls and rule out any possible future nationalisation. One of the guiding ideas of US trade diplomacy has been to ‘lock in’ the advances made over the last 20 years towards neo-liberal economics, and ensure that Latin Americans are unable (even if they wanted to) to adopt alternative policies or exert tougher conditions on US firms investing in the region.
More generally, the FTA will also have the effect of reducing Peru’s autonomy to act independently from Washington in forming its foreign policy.
Given its strategic importance, discussion of the FTA between Peru and the United States has been woefully one sided in the local press and media. The government, supported by those who stand to benefit, has made the running, with only one or two leading opposition figures seeking to raise objections. Public opinion remains largely bemused by a debate in which there has been lots of technical jargon deployed, but very little attempt to explore what the implications may be for ordinary people.