FTA with Peru: Exporting coffee beans – importing Nescafe

Peru's economic growth in recent years has by no means benefited everyone. The Swiss Agency for Development and Cooperation (SDC) has been working in this Andean country since 1964 and puts the proportion of people below the poverty line at 36 per cent, and as much as 80 per cent in the Andean regions. The Free Trade Agreement with Switzerland and Efta, of which Switzerland is a member, must not be expected to improve the situation – quite the contrary.

Last year's trade balance between both countries turned out clearly in Switzerland's favour. Swiss exports to Peru were worth 95 million francs, and its imports from that country 41 million. Agricultural products made up 82 per cent of Peru's exports, which were mainly coffee beans, bananas and asparagus. Switzerland, on the other hand, sold mostly industrial goods to that country consisting of chemicals and pharmaceuticals (37 per cent), machinery and equipment (35 per cent), as well as optical instruments and timepieces.

Peru's industry unprotected

The bilateral agreement is not helping Peru to improve its competitiveness in these areas. It is denying that country the possibility to use import duties to pursue its own industrial policies. Peru is undertaking to remove 80 per cent of industrial tariffs immediately upon entry into force of the agreement. The remaining 20 per cent (mostly on chemicals and pharmaceuticals) should go in the next five to 10 years.

The situation looks no better when it comes to food processing. Peru will continue to export coffee beans and import Nescafe and roasted coffee. Under the agreement, Peru must immediately dismantle import duties on processed agricultural goods such as coffee, soups, sauces and beverages, amongst others. Some products will have a transition period of 10 years. Chocolate, marmalade and products for children will not be made entirely duty-free, but those tariffs will be reduced as well.

Negotiations on the trade in services are to begin one year after the effective date of the bilateral agreement. In other areas, however, the Efta countries have already secured concessions that go beyond the scope of current WTO agreements.

The chapter on investment supplements the 1993 agreement and regulates market access for enterprises of both countries. Like the earlier agreement, it one-sidedly emphasizes the rights of investors at the expense of the host country. There can be no talk of reciprocity in this case as there are no known Peruvian investments in Switzerland.

Problem-ridden patent protection

The bilateral agreement contains the same rules on government procurement as the WTO multilateral agreement. Unlike Switzerland, Peru has not yet signed that agreement, however. It liberalizes government procurement all the way to the municipal level.

Furthermore, the new agreement contains more stringent provisions for the protection of intellectual property than those in the corresponding WTO agreement (TRIPS). In the very sensitive area of patents on medicines and the disclosure of confidential information for market access, Switzerland will enjoy the same protection that the USA received under its Free Trade Agreement with Peru. That complicates the question of producing and introducing cheaper generic drugs.

SDC will be leaving Peru in 2011 and handing over the baton to the State Secretariat for the Economy (Seco). The accomplishments of 50 years of struggle against poverty and inequality in that country should not be recklessly placed in jeopardy.

Isolda Agazzi, Alliance Sud

This article has been published in: Alliance Sud News no. 65, automn 2010

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Box: Free Trade Agreement with the EU

On 19 May 2010 Peru and Colombia signed a free trade agreement with the EU. Given the economic weight of the EU, it is impacting both countries much more seriously than the agreement with Efta/Switzerland (see main article). It has run into stiff resistance from social movements and trade unions. A recently published study warns that the market openings agreed under EU pressure, in particular in agriculture, milk production and mining, as well as much more stringent patent protection for medicines and seeds, could work to the detriment of the people. This is all the more so considering that the agreement pays only scant attention to human rights as well as environmental and labour standards. European firms with their direct investments and exports are the ones set to profit most. The European Parliament will discuss the agreement at the beginning of 2011.
Michel Egger, Alliance Sud