Ministerio de Comercio Exterior y Turismo PERU – CHINA FREE TRADE AGREEMENT JOINT FEASIBILITY STUDY This study has been prepared by the Ministry of Foreign Trade and Tourism of Peru and the Ministry of Commerce of the People's Republic of China Peru – China Free Trade Agreement Joint Feasibility Study Each Party is responsible for the comments and statements included in this study relating to its own economy. The Conclusions and Recommendations were prepared jointly by both Parties. 2 Peru – China Free Trade Agreement Joint Feasibility Study Table of Contents 1 INTRODUCTION ..............................................................................................................5 1.1 1.2 1.3 2 Background of China – Peru FTA .............................................................................5 Major Characteristics of Macro Economy of China and Peru ....................................6 Status of China and Peru’s FTAs with other countries ............................................ 14 TRADE AND INVESTMENT POLICIES AND SYSTEMS .............................................. 17 2.1 Introduction............................................................................................................. 17 2.2 Measures Affecting Trade in Goods ....................................................................... 17 2.2.1 Tariffs ............................................................................................................. 17 2.2.2 Non Tariffs Barriers......................................................................................... 18 2.2.3 Rules of Origin ................................................................................................ 20 2.2.4 Sanitary and Phytosanitary Measures ............................................................ 21 2.2.5 Technical Barriers to Trade ............................................................................ 23 2.3 Services ................................................................................................................. 25 2.3.1 China’s Measures Affecting Trade in Services ............................................... 25 2.3.2 China’s International Commitments related to Services .................................. 34 2.3.3 Peru’s Measures Affecting Trade in Services ................................................. 39 2.3.4 Peru’s International Commitments related to Services ................................... 53 2.4 Foreign Investment Regimes .................................................................................. 56 2.5 Trade Remedies ..................................................................................................... 61 2.6 China’s Commitments Regarding the WTO ............................................................ 66 3 ECONOMIC RELATIONS, CHALLENGES AND PROSPECTS BETWEEN CHINA AND PERU ............................................................................................................................. 69 3.1 3.2 3.3 3.4 3.5 4 IMPACTS OF TRADE AND INVESTMENT LIBERALIZATION ................................... 116 4.1 4.2 4.3 4.4 4.5 5 Trade in Goods....................................................................................................... 69 Trade in Services ................................................................................................... 74 Bilateral Investment ................................................................................................ 81 Tariff Level Comparison Between China and Peru ................................................. 83 Analysis of Competitive and Complementary Industries (Model Calculation) ......... 85 Liberalization of Bilateral Trade in Goods ............................................................. 116 Model Analysis on Trade Creation, Trade Diversion and Sensitive Industries ...... 126 Liberalization of Bilateral Trade in Services .......................................................... 134 Analysis on Impact of Liberalization of Bilateral Investment ................................. 135 Influences on Major Partners by China-Peru FTA ................................................ 136 INFORMATION EXCHANGE ON OTHER ISSUES AND ECONOMIC COOPERATION ........................................................................................................... 137 5.1 5.2 5.3 5.4 5.5 5.6 5.7 5.8 Intellectual Property Rights ................................................................................... 137 Movement of Business Persons ........................................................................... 141 Transparency ....................................................................................................... 143 Trade and Investment Promotion ......................................................................... 144 Small and Medium Enterprises Cooperation ........................................................ 147 Customs Procedures ............................................................................................ 148 Dispute Settlement ............................................................................................... 151 Trade Facilitation Matters ..................................................................................... 153 3 Peru – China Free Trade Agreement Joint Feasibility Study 5.9 5.10 6 Government Procurement .................................................................................... 155 Competition Policy ................................................................................................ 157 CONCLUSIONS AND RECOMMENDATIONS ............................................................ 159 4 Peru – China Free Trade Agreement Joint Feasibility Study 1 INTRODUCTION 1.1 Background of China – Peru FTA China Since China and Peru forged diplomatic ties in 1971, the two countries have enjoyed frequent political and economic exchanges and communications; cooperation and coordination in science and technology, education, and culture have also been successfully expanded. On January 28, 2001, the Chief Representative of Negotiations of the Ministry of Foreign Trade and Economic Cooperation Long Yongtu signed a bilateral agreement on China's entry into the WTO at the headquarters of the WTO, with Ambassador of Peruvian mission in Geneva, Jorge Voto-Bernales. During the APEC Summit in 2004 in Chile, President Alejandro Toledo Manrique declared that Peru admitted China’s market economy status. In January 7, 2005, when Chinese Vice President Zeng Qinghong visited Peru, both sides agreed to establish an all-around cooperative partnership. In March 2007, H.E. Li Changchun, member of the Standing Committee of the Political Bureau of the Central Committee of the Communist Party of China, paid a visit to Peru. During his visit, Mr. Li, together with President García, co-announced to launch the ChinaPeru FTA Joint Feasibility Study in 2007. Peru China and Peru hold long-lasting relations that started in the middle of the 19th century when the first Chinese immigrants arrived to Peru to work in the agricultural sector. Since then, both countries have shared a very sound bilateral connection. These friendly ties were strengthened in November 1971, when Peru recognized the “one China policy” and established diplomatic relations with the People’s Republic of China. In the last few years, the Sino-Peruvian relationship has also experienced a substantial improvement from the economic viewpoint. On the one hand, the evolution of trade looks promising. During the 1980s, trade flows between China and Peru did not go beyond US$ 100 million every year. In 2006, the bilateral trade grew up to around US$ 3,700 million and China became Peru’s second largest trading partner. On the other hand, in terms of investment, Chinese companies began to settle in Peru in the 1990s and recently some Peruvian companies have started to do the same in China. These facts show the strong potential of the bilateral association between Peru and China. Therefore, the interest for both countries to deepen their relationship has increased. An evidence of this positive attitude is reflected in the high-level exchange of communications and meetings that took place recently among our authorities. In this way, China’s Minister of Commerce, Bo Xilai, and Peru’s Minister of Foreign Trade and Tourism, Mercedes Araoz, met in Hanoi, Vietnam, in November 2006, to explore real possibilities to strengthen trade links. Subsequently, on March 30th, 2007, China’s Member of the Standing Committee of the Political Bureau of the CPC Central Committee, Li Changchun, and Peru’s President, Alan García, launched officially the Joint Feasibility Study of a Free Trade Agreement between China and Peru, to explore the opportunities and challenges that both countries would face and to measure the impact of an eventual FTA. Finally, the Joint Feasibility Study pretends to recommend on the best ways to conduct negotiations to the governments of China and Peru. 5 Peru – China Free Trade Agreement Joint Feasibility Study 1.2 Major Characteristics of Macro Economy of China and Peru China China has successfully maintained a rapid economic growth for over two decades since its reform and opening-up, leading the world with an average annual GDP growth rate of more than 8%. By the end of 2006, China’s GDP grew by 10.7% year on year to reach RMB 20,940.7 billion. The number of working population was 764 million. The registered urban unemployment rate decreased by 0.1% year on year to 4.1%. China’s CPI rose up 1.5% than last year. In 2006, China had a trade surplus of US$ 177.5 billion. By the end of 2006, China’s foreign exchange reserves hit US$ 1,066.3 billion, the largest amount in the world. The exchange rate of RMB has been relatively stable since the reform of exchange rate in July 2005. Table 1.1 Macro Economy Items of China (2001-2006) Year Growth Rate of GDP (%) Growth Rate of CPI (%) Registered Unemployment Rate in Urban Areas (%) Growth Rate of Investment in Fixed Assets (%) Growth Rate of M2 (%) Growth Rate of Bank Loan (%) 2001 7.5 0.7 3.6 13.1 17.6 13.0 2002 8.0 -0.8 4 16.1 16.8 16.9 2003 9.1 1.2 4.3 27.6 19.6 29.3 2004 9.5 3.9 4.2 25.8 14.6 14.4 2005 9.9 1.8 4.2 25.7 17.6 12.8 2006 10.6 1.5 4.1 24.0 16.9 14.7 Source: China Statistical Yearbook 2006 China’s trade in goods reached US$ 1,760.7 billion in 2006, a year-on-year increase of 24%. China’s export and import volume hit US$ 969.1billion and US$ 791.6 billion, up27.2% and 20.0% respectively. In 2006, China’s total investments on fixed assets increased by 24.0% to RMB 10,987 billion. Investment in industrial sector grew significantly faster than that in other sectors. 41,485 foreign invested enterprises were granted approval of establishment, down 5.8% from last year. Actually utilized foreign investment decreased by 4.1% to US$ 69.4billion. China’s local and foreign currency deposits in financial institutions recorded a balance of RMB 23.9 trillion, up 16% year on year. Since 2000, industries with fastest growth rate are manufacturing (11.6% in 2005), construction (12.6% in 2005), transportation (11.7%) and so on. The fast growth of manufacturing reflects that China is in the middle-stage of industrialization. The investment in hi-tech industries such as computers, and in petroleum and chemical industries has been the driving forces of Chinese economy in recent years. With accelerated urbanization, the real estate investment is very high, which further facilitates the growth of construction. Since China joined the WTO in 2001, the leaping foreign trade is another force driving China’s economy. 6 Peru – China Free Trade Agreement Joint Feasibility Study Table 1.2 Gross Domestic Product Growth by Sectors (%) Year Construction Transportation, Warehouse & Post Wholesale & Retail 8.7 6.8 11.6 9.3 10 8.8 9.9 10 Agriculture Manufacture 2001 2.8 2002 2.9 2003 2.5 12.8 12.1 8.3 11 2004 6.3 11.5 8.1 17.1 8.1 2005 5.2 11.6 12.6 11.7 7.8 2006* 5.0 12.5 12.4 8.3 N.A. Source: The data of 2001-2005 is from China Statistical Yearbook 2006, and the data of 2006 is from General Survey of year 2006 for National Economy and Social Development Peru Peru has recorded outstanding economic expansion in the last years evidenced by a GDP growth of 8.03% in 20061 and 6.4% in 2005. This performance is expected to be maintained in the future, mainly through high levels of public and private investment, an increase in domestic demand and greater exports driven by a strong world economy. In this scenario, GDP per capita would grow at an annual 6% and its estimated value for 2007 (US$ 3,600) would rise up to US$ 5,700 by 2015. World Grow th (% change) 9 Peru 8.03* 8 GDP Growth (Annual % Growth) 7 6.4 6 Em erging 5.2 5.2 5 3.9 4 3 Advanced 2 1 World 0 80 82 84 86 88 90 92 94 96 98 00 02 04 06 Source: International Monetary Fund and BCRP / *Estimate: INEI Prepared by: ProInversión Total exports reached US$ 23.7 billion in 2006, exceeding all prior projections, growing at an annual rate of more than 35% for the last three years. This is due to an increase in international demand, which translates into higher world prices and greater demanded volumes for Peruvian exports to the benefit of shrewd local business. 1 The highest rate since 1995. 7 Peru – China Free Trade Agreement Joint Feasibility Study Exports Growth 23,740 22,000 Millions of US$ 17,273 50% 40% 12,716 12,000 41% 36% 37% 8,995 6,883 6,956 7,665 20% 17% 2,000 2000 1% 10% 2001 2002 30% Annual % Growth 60% 17,000 7,000 70% 10% 0% 2003 2004 2005 2006 Source: SUNAT Prepared by: MINCETUR Traditional and Non Traditional Exports2 Exports Traditional Products Fisheries Agriculture Mining Crude and byproducts Non Traditional Products Agriculture Fisheries Textiles Lumber and paper, products Chemical Non metalic minerals Iron, steel and jewelry Machinery Other Other Source: BCRP and SUNAT 2005 12,918.7 1,303.0 330.6 9,759.5 1,525.6 4,276.5 1,008.7 322.5 1,275.0 261.3 537.6 118.1 493.3 190.1 69.9 141.1 2006 18,332.2 1,331.4 572.5 14,715.8 1,712.5 5,262.1 1,212.0 432.1 1,468.9 332.8 600.8 135.2 828.8 162.5 89.0 155.3 Var% 41.9 2.2 73.2 50.8 12.3 23.0 20.2 34.0 15.2 27.4 11.8 14.5 68.0 -14.5 27.3 10.1 Private investment grew 19.9% in 2006, after increasing 13.9% in 2005. Similar rates are expected for the following years as a consequence of the strong world demand and the significant confidence surge of Peruvian investors and consumers. In this sense, annual private investment flows to Peru are expected to exceed US$ 20 billion or 20% of GDP in the near future. Additionally, public investment will benefit from the higher levels of tax collection (tax revenues increased 28.9% in 2006) and improvements in the capabilities to execute public investment projects. 2 The concept of "traditional exports", utilized by the Peruvian Central Bank, includes the products that historically have constituted most of the value of the Peruvian exports; which in relative terms tend to include a smaller added value than the “non traditional” products. The traditional exports include basically some agricultural (cotton, sugar and coffee) and mining products (copper, tin, iron, gold, silver, lead, zinc and molybdenum), hydrocarbons, fishmeal and fish oil; while all the other exports are considered non traditional. 8 Peru – China Free Trade Agreement Joint Feasibility Study Private Investment Growth 25 Annual % Growth 20 15 10 5 0 2001 2002 2003 2004 2005 2006 -5 -10 Source: MEF and BCRP Key Investment Variables Variable Private Investment (% change) Public Investment (% change) Employment in companies of 10 or more workers (% change) Exports (% change in US$) Capital goods imports (% change in US$) Construction Sector GDP (% change) Tax Collection (% change) Financial System Credits Pension Funds (% Change) Lima Stock Market General Index (% Change) Source: ProInversión 2004 2005 9.1 5.7 1.8 40.9 19.6 4.7 14.9 4.7 17.5 52.3 2006 13.9 12.2 2.8 35.3 29.6 8.4 18.3 7.9 25.5 29.4 19.9 14.6 9.8 37.1 40.5 14.7 28.9 16.6 40.3 168.3 Peru’s growth has also started to build up on a livelier domestic demand, stemming from a growing income and more jobs. Particularly, in 2006, the domestic demand grew 10.6%, this was explained by the expansions registered on public and domestic consumption, and mainly on gross domestic investment. The high growth rates recorded in these components of the domestic demand indicate that the Peruvian economy is crossing an expansive phase with growth over the tendency In 2006, Peru continued to show a sound international liquidity position thanks to its Foreign Exchange Reserves, equivalent to US$ 17.3 billion and one full year of imports. Such level ensures Peru to honor its international liabilities with other countries. 9 Peru – China Free Trade Agreement Joint Feasibility Study Foreign Exchange Reserves 20,000 50% 17,275 Millions of US$ 16,000 12,631 12,000 10,000 40% 14,097 14,000 9,598 8,613 8,180 30% 10,194 8,000 23% 24% 6,000 4,000 6% 5% 0 2000 10% 12% 11% 2,000 2001 2002 2003 20% Annual % Growth 18,000 0% 2004 2005 2006 Source: BCRP Balanced government accounts are another key element in evaluating Peruvian economic health. Peru has rapidly reduced its fiscal deficit, from an average of 2.4% of GDP in 20002003 to a surplus 0.6% of GDP in 2006, through sound economic management and increased tax revenues, sustained by economic growth and high international prices. Peru’s fiscal balance is among the strongest region-wide. Fiscal Deficit (%GDP) 1.0 0.5 0.0 0.6 0.0 2006* 2007* -0.4 -0.5 -1.1 -1.0 -1.7 -1.5 -2.3 -2.0 -2.5 -2.5 -3.0 -3.3 -3.5 2000 2001 2002 2003 2004 2005 Source: BCRP/ *Projected values: MEF Peru’s economic growth has benefited from the country’s exchange rate and price stability, now lasting over ten years, as a consequence of the economic authorities’ firm commitment to the necessary fiscal balance and a conservative monetary policy. On the one hand, Peru has a very stable floating exchange rate, where the Central Bank seldom intervenes to prevent sharp fluctuations. On the other hand, Peru has the lowest inflation in Latin America. 10 Peru – China Free Trade Agreement Joint Feasibility Study Exchange Rates in Latin America (Index January 2001 = 100) 200 180 160 140 120 100 En e0 M 1 ay -0 Se 1 p0 En 1 e0 M 2 ay -0 Se 2 p0 En 2 e0 M 3 ay -0 Se 3 p0 En 3 e0 M 4 ay -0 Se 4 p0 En 4 e0 M 5 ay -0 Se 5 p0 En 5 e0 M 6 ay -0 Se 6 p0 En 6 e07 80 Peru Brazil Chile Colombia Mexico Source: Bloomberg and Banco de Crédito del Perú Inflation in Latin America 30 25 20 15 10 5 0 1998 1999 2000 2001 2002 2003 2004 2005 2006 -5 Peru Argentina Brazil Chile Colombia Mexico Source: Banco Central de Reserva del Perú, Chile, Mexico and Argentina / Data as of October 2006 International analysts and capital markets expect Peru to be upgraded to investment grade in the near future in recognition to the strong fundamentals of the Peruvian economy. Two of the main international rating companies have rated Peruvian public debt instruments one step below investment grade. Standard & Poor’s (S&P) upgraded Peru’s long-term debt risk rate in foreign currency, from BB to BB+, and its rating of long-term sovereign debt in domestic currency from BB+ to BBB-. Fitch Ratings had done so before, taking the lead in upgrading Peru’s credit risk. 11 Peru – China Free Trade Agreement Joint Feasibility Study Credit Classification in 2007- Latin America Comparison S&P Fitch Mexico BBB BBB Chile A A Peru BB+ BB+ Colombia BB BB Brasil BB BB Venezuela BBBBArgentina B+ B Bolivia B3 BEcuador CCC+ BSource: Standard & Poor's, Moody's and Fitch Rating Moody's Baa1 A2 Ba3 Ba2 Ba2 B2 B3 BCaa1 At the end of 2006, the EMBI+ country risk indicator awarded by investment bank JP Morgan Chase reached 120 basis points (its lowest level ever) and it has continued decreasing during 2007, In the last five years, the drop has exceeded 5 percentage points (more than 500 basis points) leading to major cost savings in some local projects. A. Key Industries At the end of 2006, the top performing industries were construction (14.8% growth), trade (8.1%), agriculture (7.2%), manufacturing (6.9%) and other services (7.2%). Construction’s strong growth is reflected in more shopping centers, private housing, and infrastructure building. Construction is strongly driven by government-supported programs such as MiVivienda (social housing program) and others with similar funding schemes. Main infrastructure works were Cerro Verde mining company’s primary sulfur plant expansion, Southern Copper’s Ilo smelter plant upgrade, the construction of the Pillones dam and the start of the TransAmazon highway, among others. GDP per Sector 2006 (% change) 16 14.8 14 12.3 12 10 8 7.2 7.2 6.9 6.9 Agriculture Other Services Manufacturing Pow er and Water 6 4 2 0 Construction Trade Source: Banco Central de Reserva del Perú Agriculture grew on average 7.2%, reflecting the 7.9% and 6.6% increases in crop and livestock production, respectively. Driven by farm exports, this sector is making Peru known worldwide for its asparagus, artichokes, piquillo pepper, red peppers (páprika), among other products. Manufacturing industry’s growth (6.9%) was mainly driven by non-primary manufacturing that typically adds more value and has a greater impact in creating jobs. Growth focused on serving expanding local markets, and consolidating old and capturing new foreign markets. 12 Peru – China Free Trade Agreement Joint Feasibility Study Remarkably, manufacturing industries grew against the background of a more strongly competitive local and external environment. Food, beverages, and tobacco; and paper and printing were the most dynamic industries. Domestic Gross Product by Productive Sectors (% change) Sector 2002 Agriculture (crop and livestock) (**) 6.10 Fisheries 6.10 Construction 7.90 Mining and hydrocarbons 12.00 Manufacturing 5.90 Other services 4.10 Power and water 5.50 Trading 3.70 GROSS VALUE ADDED (GVA) 5.30 Product taxes and import tariffs 4.00 GROSS DOMESTIC PRODUCT 5.20 Prymary sectors GVA 7.70 Non primary sectors GVA 4.60 (*) Preliminary / (**) Including forestry Source: Banco Central de Reserva del Peru, INEI 2003 (*) 1.90 -12.50 4.30 5.40 3.20 4.50 4.20 2.90 3.80 5.20 3.90 2.90 4.00 2004 (*) 1.70 33.90 4.70 5.20 7.40 4.40 4.60 5.80 5.10 6.40 5.20 4.60 5.20 2005 (*) 4.80 1.20 8.40 8.10 6.50 6.30 5.30 5.20 6.20 8.50 6.40 5.40 6.50 2006 (*) 7.20 2.90 14.80 1.30 6.90 7.20 6.90 12.30 8.03 B. Potential Growth Sectors Main industries with major growth potential include agribusiness and farm exports, fish farming, forestry, tourism, mining and hydrocarbons, and services, among others. Peru has been specializing in high-price growing products, like vegetables and fruits, and is currently the leading country in asparagus and dry red pepper (paprika) exports. Peruvian asparagus exports exceeded US$ 290 million, while paprika exports reached US$ 73.3 million in 2006. Due to agricultural exports fast development, it is expected that some 300,000 hectares will be allocated to horticulture and fruit growing for exports in the mid-term. This growth is sustained by significant investments made by the private sector. In Peru, aquiculture and fish farming are expected to develop and consolidate as leading Peruvian export industries, due to particular sea and continental conditions, availability of nutrients and great biodiversity. Moreover, Peru’s clean seas, rivers, lakes and lagoons, combined with local expertise and leadership in worldwide exports of fishmeal used for animal feed, create additional opportunities for growth. Some 1.7 million foreign tourists visit Peru each year. This figure is still low taking in consideration the country’s attractions. Not surprisingly, some years’ tourism has grown about 20%. Tourist arrivals are expected to reach three million. At least three travel circuits need developing. The Southern Circuit, currently the most attractive, may attract up to 2 million tourists per year in the medium term once access to some areas improves and traveler flows are rearranged accordingly. Developing the Northeast Circuit is now a priority. Private companies have shown interest. The Central Circuit’s main attraction is a visit to the city of Lima and its surrounding areas. Longer trips may cover two or more circuits. Forests also provide potential for development. Peru is the world’s ninth country for forest surface, second only to Brazil in Latin America. Located in the South American tropics where most of the world’s rainforests are found, Peru has 78.8 million hectares of natural forests and over 8 million hectares of lands available for reforestation. It is estimated that US$ 3 billion per year can be earned from exports of timber and its byproducts, to meet world demand worth over US$ 100 billion and thereby create stable jobs for some 400,000 Peruvians. In the energy and mines sector, successful prospecting resulted in the announcement of important projects. Investments in mining will reach US$ 2 billion a year, also including non metallic mineral projects, and extraction and use of gas and petroleum. 13 Peru – China Free Trade Agreement Joint Feasibility Study Several other investments are expected to be made in the manufacturing, trading, real estate and services sectors, totaling annual private investments of US$ 20 billion. 1.3 Status of China and Peru’s FTAs with other countries China Currently, China has concluded or is undertaking FTA negotiations with 28 economies. Table 1.3 China’s FTA Negotiations No. 1 2 NAME CHINA-HK CEPA CHINA-MACAU CEPA CHINA-ASEAN FTA 3 CHINA-CHILE FTA 4 CHINA-PAKISTAN FTA 5 6 7 8 9 10 11 12 13 14 CHINA-GCC FTA CHINA-AUSTRALIA FTA CHINA-NZ FTA CHINA-SINGAPORE FTA CHINA-SACU FTA CHINA-ICELAND FTA CHINA-INDIA FTA CHINA-KOREA CHINA-PERU FTA CHINA-NORWAY FTA PROGRESS CONCLUDED PARTIALLY CONCLUDED -Trade in Goods: CONCLUDED -Trade in Services: PARTIALLY CONCLUDED -Investment/Economic Cooperation: ONGOING PARTIALLY CONCLUDED -Trade in Goods: CONCLUDED -Trade in Services/Investment: ONGOING PARTIALY CONCLUDED -Trade in Goods: PARTIALLY CONCLUDED -Trade in Services/Investment: ONGOING ONGOING ONGOING ONGOING ONGOING ONGOING ONGOING JOINT STUDY ONGOING JOINT STUDY ONGOING JOINT STUDY ONGOING JOINT STUDY ONGOING A. China-ASEAN Free Trade Agreement China-ASEAN FTA is the first FTA China has signed. In the Framework of the Agreement on Comprehensive Economic Cooperation Between China and ASEAN (thereafter referred as “the Framework”) signed up in November 2002, two sides decided to establish the ChinaASEAN FTA in 2010. In November 2004, China and ASEAN signed the Agreement of Trade in Goods under the Framework, to be in force in July 2005. In January 2007, the Agreement of Trade in Service under the Framework was signed, and put into practice from July 2007. The negotiation on Investment is ongoing. B. Closer Economic Partnership Arrangement (CEPA) between Mainland and Hong Kong SAR, and between Mainland and Macao SAR CEPA was signed between Mainland and HK, and Mainland and Macao in 2003, and took effect as of January 1, 2004. The Supplement, Supplement II , Supplement III and Supplement IV to the CEPA were signed in 2004, 2005, 2006 and 2007 respectively. C. China-Chile Free Trade Agreement China and Chile signed the Free Trade Agreement in November 2005. The China-Chile FTA is the first FTA signed between China and a Latin American country. This agreement has been implemented since July 1 2006. According to this agreement, the tariffs of 97% products in the tariff lines of both countries will be eliminated within 10 years. Some textile raw 14 Peru – China Free Trade Agreement Joint Feasibility Study materials exporting from China to Chile, and some kinds of paper importing from Chile by China are in the list of exclusive commodities. China and Chile will promote cooperation in economy, small and medium-sized enterprises, culture, education, science and technology, environment, labor and social security, intellectual property, investment, mineral products, and industry. Negotiations on trade in services and Investment were launched last year. Peru In recent times, Peru has embarked on an extensive negotiations path. At the multilateral level, Peru is supporting the WTO Negotiations and several initiatives within the Cairns Group, G-20 and G-33 which aim to liberalize trade. Also, from the bilateral-regional viewpoint, Peru has taken a very ambitious and comprehensive approach in order to facilitate transactions and increase trade flows with other countries. In 1997, Peru started this process by deciding to join into the Andean Free Trade Zone, which was in effect since 1993. Peru negotiated a gradual integration into this zone with the rest of the Andean Community members3 and completed its full incorporation in December 31st, 2005. After the incorporation to the Andean Free Trade Zone, Peru negotiated a Free Trade Agreement in goods with Chile, which entered into force in 1998. This agreement has been deepened in 2006, when both countries finished the negotiations in services and investments. Moreover, Peru signed a Free Trade Agreement with MERCOSUR4 in 2005, which only covers trade in goods. Apart from these agreements, under the framework of the Latin American Integration Association (ALADI) Treaty of Montevideo5, Peru has negotiated and put into force Partial Agreements in goods with Mexico and Cuba. In addition, Peru is in the middle of other ongoing FTA processes. On the one hand, Peru signed a FTA with the U.S. in April 2006 and only the ratification process from the U.S. Congress is pending. In the same way, Peru and Thailand signed an Early Harvest on trade in goods in November 2006, which has to be ratified by their legislative branches. On the other hand, FTA negotiations with Singapore, Mexico, Canada and EFTA (European Free Trade Association) are currently underway and it has been announced to start in the near future, trade negotiations with the European Union. Peru’s Trade Agreements and Regional Integration Initiatives Trade Agreements and Regional Integration Initiatives Andean Community Progress In Force APEC In Force Latin American Integration Association (ALADI) In Force Free Trade Area of the Americas (FTAA) Suspended Peru - United States Trade Promotion Agreement Concluded Peru - Chile Economic Complementation Agreement Peru - MERCOSUR Economic Complementation Agreement Peru - Thailand FTA Peru - Singapore FTA In Force / Extension Concluded In Force Early Harvest Concluded / Ongoing Extension Concluded 3 Bolivia, Colombia, Ecuador and Peru are the current Andean Community members. Argentina, Brazil, Paraguay and Uruguay 5 ALADI is the Association of Latin American Integration, which is comprised by Argentina, Bolivia, Brazil, Chile, Colombia, Cuba, Ecuador, Mexico, Paraguay, Peru, Uruguay and Venezuela. 4 15 Peru – China Free Trade Agreement Joint Feasibility Study Peru - Mexico Economic Complementation Agreement In Force / Ongoing Extension Peru - Cuba Economic Complementation Agreement In Force Peru - EFTA FTA Ongoing Peru - Canada FTA Ongoing Andean Community - European Union Association Agreement Ongoing Peru - China FTA Joint Study Ongoing Peru - Korea FTA Joint Study on Discussion Prepared by: MINCETUR/VMCE/OGEE 16 Peru – China Free Trade Agreement Joint Feasibility Study 2 TRADE AND INVESTMENT POLICIES AND SYSTEMS 2.1 Introduction China Since 1979, China had been progressively reforming its economic system. China's consistent efforts to resume its status as a contracting party to GATT, and accession to the WTO Agreement are in line with its objective of economic reform to establish a socialist market economy as well as its basic national policy of opening to the outside world. Peru Trade between China and Peru dates from the middle of the nineteen century, after the first Chinese immigrants settled in Peru. Since that time, bilateral trade has grown substantially thanks to their complementary economies, increased demand for the goods produced by the other and open trade policies implemented by China and Peru. Currently, there are some existing tariff and non-tariff barriers that affect bilateral trade. However, despite these obstacles, trade flows have shown a continuous upward trend. This means that further liberalization by means of a trade agreement between China and Peru can bring significant benefits to both countries. 2.2 Measures Affecting Trade in Goods 2.2.1 Tariffs China Under the Regulation on Import and Export Tariff (Article 9), duty rates on imports comprise: MFN tariff rates, agreement tariff rates, special preferential tariff rates, general tariff rates, tariff quota rates and interim tariff rates. MFN tariff rates shall apply to goods imported from and originated in the members of the WTO providing the MFN treatment is mutually reciprocal between the People’s Republic of China and these members; or those countries or regions with which the People’s Republic of China has concluded a bilateral trade agreements for reciprocal tariff preference; or the Customs territory of the People’s Republic of China. The agreement tariff rates shall apply to goods imported from and originated in the countries or regions which join together with the People’s Republic of China into regional trade agreements for tariff preferences. The special preferential tariff rates shall apply to goods imported from and originated in the countries or regions with which the People’s Republic of China has concluded a special tariff preferential agreement. This type of tariff rates is more preferential than the agreement tariff rates. The general tariff shall apply to the imported goods originated from other resources or/and to the imported goods of undetermined origin. The tariff quota rates shall apply to imported goods which are subject to the tariff quota administrative regulations. 17 Peru – China Free Trade Agreement Joint Feasibility Study The interim tariff rates are applied for a specific period of time to certain goods. At present, the products subject to TRQ administration in China include wheat, corn, rice, sugar, wool, wool tops, cotton and three categories of chemical fertilizers. Table 2.1 Simple Average Tariff Level of China 1996 2000 2001 2002 2003 2004 2005 2006 2007 Tariff 43.2 39.9 23.0 Sources: Ministry of Finance, China. Year 1992 1993 16.4 15.3 12.0 11.0 10.4 9.9 9.9 9.8 Part 3.4 have described in details about China’s tariff level and structure. Peru Since the economic reforms at the beginning of the 1990s, Peru has made good progress in reducing its tariff levels and dispersion. In December 2006, Peru issued the Supreme Decree Nº 211-2006-EF that eliminated tariffs for 2,894 items and facilitates the imports of capitalintensive goods and industrial inputs. With this measure, 43.56% of the items are currently tariff-free. Afterwards, in July 2007, Peruvian tariffs were reduced once again, reaching a current average applied tariff of 8.04%.6 Currently, Peru only has 5 effective ad-valorem tariff levels: 0%, 12%, 17%, 20% and 25%.7 In terms of the bound tariff, Peru maintains in the WTO a 30% rate for most of the items, with the exception of 29 agricultural tariff lines of some sensitive goods (maize, wheat, sugar, sugar substitutes and some dairy products), which keep a 68% tariff bound rate. Also, it is important to mention that Peru does not apply specific tariffs or tariff quotas. 2.2.2 Non Tariffs Barriers China Apart from tariffs, China has implemented other policies in foreign trade administration, including: rules of origin, import licensing system, customs valuation, pre-shipment inspection, technical regulations and standards, sanitary and phytosanitary measures and trade remedies. After China’s accession to the WTO, the Chinese government has been making great efforts to ensure that the policies adopted are WTO consistent. Peru One of the main features of Peru’s trade policy is the absence of trade distorting NTB measures. In this sense, Peru does not apply import and export licenses, export levies, voluntary export restrictions or quantitative restrictions. In the case of quantitative import restrictions, Peru’s only exceptions are related to sanitary, health, internal security, environmental, biodiversity and cultural heritage protection. Similarly, Peru’s quantitative export restrictions only apply to cases related to biodiversity and cultural heritage protection. Peru also applies price bands on a non-discriminatory basis, which are restricted to a list of 46 agricultural goods. This mechanism known as Variable Specific Duty was put into practice in 1991. The idea is to apply this specific duty every time the corresponding import prices for the affected goods fall below the minimum established import price. In this way, domestic producers are protected against a sharp drop of import prices. 6 7 The dispersion of Peru’s tariff lines by applied tariff rate is shown in Section 3.4. There is one additional level of 10% for only one subheading: Other yellow dent corn (10059011). 18 Peru – China Free Trade Agreement Joint Feasibility Study This scheme has been enhanced in 2001 with the introduction of ceiling prices. If the corresponding import prices rise above the ceiling prices, a tariff rate reduction comes into effect in order to restrain the price increase and protect customers. With this adjustment, it is possible to be protected from significant international price fluctuations and help to stabilize 8 domestic prices . PERU: DAIRY PRODUCTS SUBJECT TO PRICE BANDS SUBHEADING DESCRIPTION 0401.10.00.00 Milk and cream not concentrated or sweetened of a fat content, by weight, not exceeding 1 Milk and cream not concentrated or sweetened of a fat content, by weight, exceeding 1 % 0401.20.00.00 but not exceeding 6 % Milk and cream concentrated and sweetened in powder or granules of a fat content, by 0402.10.10.00 weight, not exceeding 1%, in immediate packing of a net content not exceeding 2,5 kg Milk and cream concentrated and sweetened in powder or granules in immediate packing of 0402.10.90.00 a net content not exceeding 2,5 kg. Other Milk and cream concentrated and unsweetened in powder or granules of a fat content, by 0402.21.11.00 weight, exceeding 1.5 % and a fat content equal or exceeding 26%, by weight over dry content, in immediate packing of a net content not exceeding 2,5 kg Milk and cream concentrated and unsweetened in powder or granules of a fat content, by 0402.21.19.00 weight, exceeding 1.5 % and a fat content equal or exceeding 26%, by weight over dry content, in immediate packing of a net content not exceeding 2,5 kg. Other Milk and cream concentrated and unsweetened in powder or granules of a fat content, by 0402.21.91.00 weight, exceeding 1.5 %, in immediate packing of a net content not exceeding 2,5 kg. Other Milk and cream concentrated and unsweetened in powder or granules of a fat content, by 0402.21.99.00 weight, exceeding 1.5 %. Other Other milk and cream concentrated in powder or granules of a fat content, by weight, 0402.29.11.00 exceeding 1.5 % and a fat content equal or exceeding 26%, by weight over dry content in immediate packing of a net content not exceeding 2,5 kg Other milk and cream concentrated in powder or granules of a fat content, by weight, 0402.29.19.00 exceeding 1.5 % and a fat content equal or exceeding 26%, by weight over dry content in immediate packing of a net content not exceeding 2,5 kg. Other Other milk and cream concentrated in powder or granules of a fat content, by weight, 0402.29.91.00 exceeding 1.5 % in immediate packing of a net content not exceeding 2,5 kg. Other milk and cream concentrated in powder or granules of a fat content, by weight, 0402.29.99.00 exceeding 1.5 % in immediate packing of a net content not exceeding 2,5 kg. Other 0402.99.10.00 Condensed milk 0404.10.90.00 Whey. Other 0405.10.00.00 Butter 0405.90.20.00 Dehydrated dairy oil (“butteroil”) 0405.90.90.00 Butter and dairy spreads. Other 0406.30.00.00 Processed cheese, not grated or powdered 0406.90.10.00 Other cheese of a water content, by weight not exceeding 36% 0406.90.20.00 Other cheese of a water content, by weight exceeding 36% but not exceeding 46% 0406.90.30.00 Other cheese of a water content, by weight exceeding 46% but not exceeding 55% 0406.90.90.00 Other cheese. Other Source: Ministry of Economics and Finance. 8 Within the context of the Peru – US FTA, Peru has committed not to apply the price bands to the imports originating from US. If one of these 46 agricultural goods is originating from US, the tariff level agreed in the negotiation with their subsequent tariff reduction will be applied. In case the MFN effective tariff applied to similar goods from third Parties is lower than the preferential tariff levels, goods from US will be charged with the former one. 19 Peru – China Free Trade Agreement Joint Feasibility Study PERU:AGRICULTURAL GOODS SUBJECT TO PRICE BANDS 1005.90.11.00 1005.90.12.00 1005.90.90.90 1006.10.90.00 1006.20.00.00 1006.30.00.00 1006.40.00.00 1007.00.90.00 1103.13.00.00 1108.12.00.00 1108.13.00.00 1701.11.90.00 1701.12.00.00 1701.99.00.90 1702.30.20.00 Other maize (Corn). Unmilled. Yellow Other maize (Corn). Unmilled. White Other maize (Corn). Unmilled. Other Rice in the husk (paddy) Husked (brown) rice Semi milled or wholly milled rice, whether or not polished or glazed Broken rice Grain Sorghum. Other Groats and meals of maize (corn) Maize (corn) starch Potato starch Cane sugar raw. No additives. Other Beet sugar raw. No additives Cane or beet sugar raw. Other Glucose syrup Other fructose and fructose syrup, containing in the dry state more than 50 % by weight of 1702.60.00.00 fructose, excluding invert sugar 1702.90.20.00 Caramel 1702.90.30.00 Sugars containing added flavouring or colouring matter 1702.90.40.00 Other syrups 1901.90.90.00 Other food preparations of flour meal starch or malt extract. Other 2106.90.99.90 Other food preparations not else where specified. Other 2309.90.90.00 Other preparations for animal feed. Other 3505.10.00.00 Dextrins and other modified starches Source: Ministry of Economics and Finance. 2.2.3 Rules of Origin China In China, rules of origin can be divided into non-preferential and preferential rules. Regulations on Rules of Origin of Import and Export Goods of the People's Republic of China took effect on January 1st , 2005, and applies in determining the origins of imports and exports in non-preferential trading measures implementation, such as MFN treatment㸪 antidumping, anti-subsidy, safeguard measures㸪 administration of geographical indications㸪 country quotas, tariff quotas and other activities such as government procurement and trade statistics. The followings belong to the preferential ones, namely, Provisional Rules of Origin of the General Administration of Customs of the People’s Republic of China for Imports under Agreement on Trade Negotiations among Developing Member Countries of the Economic and Social Commission for Asia and the Pacific9 (2001), Rules of Origin of China-ASEAN FTA under the Framework Agreement on ASEAN and China Economic Cooperation(2003), Rules of Origin for Trade in Goods under the Mainland and Hong Kong Closer Economic Partnership Arrangement (2004), Rules of Origin for Trade in Goods under the Mainland and Macao Closer Economic Partnership Arrangement (2004), China-Pakistan FTA Rules of Origin (2005), China-Chile FTA Rules of Origin(2006). According to the Rules of Origin of FTA that China had signed with other Parties, the products could be generally divided into three kinds: products wholly obtained or produced in the exporting Party, products worked upon in conformity with relevant provisions, but not wholly 9 In 2001 it was briefly called Bangkok Agreement and in 2005, it was renamed the Agreement on Trade in Asia and the Pacific Region. 20 Peru – China Free Trade Agreement Joint Feasibility Study obtained or produced in the exporting Party, and products satisfied with specific products rules. The contents of relevant documents should be referenced. Also, information on rules of origin determination, administrative or judicial review and origin pre-determination can be referred to at www.customs.gov.cn. Peru Peru has fully implemented the WTO Agreement on Rules of Origin since January 1st, 1995, which includes the disciplines to be applied during the transition period until the harmonization work program under the WTO is completed. Peru has notified its rules of origin legislation to the WTO and the Ministry of Foreign Trade and Tourism is the institution in charge of issuing every rule of origin. Peru’s rules of origin are based on a positive, neutral and transparent standard. A negative criterion is only used to explain the positive standard. All the rules of origin are applied in an impartial, transparent and neutral manner. In this sense, preferential and non-preferential rules of origin have to be released in official publications, as well as any changes concerning them. These changes are not applied retroactively. A. Preferential Rules of Origin Preferential rules of origin are applied to imports that claim for preferential treatment under trade agreements within the frame of the Latin American Integration Association (ALADI), Andean Community and other agreements. Aside from general rules, Peru also applies product-specific rules of origin and criteria contained in these rules are based on tariff classification changes, national value content requirements, technical requirements or a combination of them. To claim a preferential treatment, a certificate of origin issued by an official or authorized entity of the exporting country is required. B. Non-Preferential Rules of Origin Non-preferential rules of origin are applied to imports that are subject to antidumping and countervailing duties in compliance with the disciplines set out in the WTO. These rules are mostly based on a change in tariff classification criterion. If the non-preferential rule of origin includes a national value content requirement, then the calculation method is described in the rule. 2.2.4 Sanitary and Phytosanitary Measures China China applies SPS measures only to the extent necessary to protect the life and health of human beings, animals and plants. And China has made every effort to base its SPS measures on international standards, guidelines and recommendations. With the booming growth of China’s import of agricultural products and food, quarantine inspection measures are required to prevent the import of pest and diseases, protect agricultural and forestry production and at the same time, avoid harm to people’s health through imported unsafe food. The General Administration of Quality Supervision, Inspection and Quarantine of the People’s Republic of China (AQSIQ) is responsible for the entry and exit of plants, animals, their products, and food safety concerning inspection and quarantine. Based on risk analysis, 21 Peru – China Free Trade Agreement Joint Feasibility Study AQSIQ is authorized to decide whether import is permitted, to establish requirements for entry-exit inspection and quarantine, and to negotiate with related government authorities of other countries on general SPS issues or detailed inspection and quarantine requirements for specific products. Import permits for animals and plants subject to sanitary requirements, valid for a period of six months, must be obtained from the AQSIQ prior to import. Applications must be submitted to local authorities of inspection and quarantine, and permit or notice of refusal will be issued within 20 working days of receipt of the application once it is accepted. The applicant must reapply for the permit if the quantity shipped exceeds the quantity indicated in the permit by 5%. China’s laws and legislations relating to its SPS regime include: Law of the People’s Republic of China on the Entry and Exit Animal and Plant Quarantine, Regulations for the Implementation of the Law of the People’s Republic of China on the Entry and Exit Animal and Plant Quarantine, Law of the People’s Republic of China on Frontier Health and Quarantine, Regulations for the Implementation of the Law of the People’s Republic of China on Frontier Health and Quarantine, and Law of the People’s Republic of China on Food Hygiene, and so on. China’s national SPS enquiry point is located in the Research Center of Standards and Technical Regulations of AQSIQ. Peru The competent authorities for sanitary and phytosanitary (SPS) regulations are the Ministry of Agriculture, Ministry of Production and Ministry of Health. In terms of phyto and zoo sanitary regulation, the main authority is the Ministry of Agriculture’s National Agrarian Health Service (SENASA); the responsible entity in food safety is the Ministry of Health’s General Directorate of Environmental Health (DIGESA); and the Ministry of Production’s Technological Fishing Institute (ITP) is in charge of the sanitation issues on hydro biological goods. All Peru’s SPS regulation is under the framework of the WTO Agreement on Sanitary and Phytosanitary Measures. Peru participates actively in SPS matters at the international level. In this sense, Peru is a member of the Codex Alimentarius Commission (CODEX), World Organization for Animal Health (OIE) and International Plant Protection Convention (IPPC). In addition, Peru has adopted the following commitments and agreements: United Nations Conference on Environment and Development (UNCED), International Code of Conduct on the Distribution and Use of Pesticides, Convention on Biological Diversity, Stockholm Convention on Persistent Organic Pollutants, Montreal Protocol, Basel Convention and the Rotterdam Convention for the implementation of the Prior Informed Consent procedure on the importation of pesticides. SENASA is the body in charge of any phyto and zoosanitary inspection, verification and certification. Also, SENASA diagnoses, identifies and provides biological controllers. Furthermore, the institution registers and controls pesticides, seeds, plant nurseries, veterinary medicines, animal foods, importers, manufacturers, selling points, and responsible professionals. Additionally, it issues the authorizations to bring livestock and agricultural goods into the country. All animals, plants and their related products need an authorization to have access into the Peruvian market. In addition, the corresponding institutions can issue emergency sanitary and phytosanitary measures in order to prevent the entry of certain goods in case of the presence of threat that attempts against Peru’s SPS conditions. In terms of food safety, the existing domestic regulations have been harmonized with the international regulations, particularly with the Codex Alimentarius. Also, Peru has adopted 22 Peru – China Free Trade Agreement Joint Feasibility Study international standards in terms of nutritional valuation and certifying food quality. To harmonize and adopt food safety international standards has helped the negotiation of equivalence agreements with third countries that are destination markets for Peruvian exports. Pest risk analyses are conducted by the corresponding institutions. The average time to conduct an animal-related risk analysis is around 3 months. In the case of plant-related risk analysis, the average time is 1 year. The longer time for the latter is explained because of the lack of cooperation from the partner country or the insufficient information obtained from the questionnaires to conduct the analysis. One of the main concerns of Peru’s authorities is the emergence of pests and diseases that can affect the development of animal and plant-related activities; expose the population to serious risks; and damage the country’s biodiversity. In this way, SENASA is taking an active role to control and eradicate diseases, which has allowed the recognition of disease-free areas from foot-and-mouth disease, avian flu, and bovine and goat brucellosis, among others. In terms of the fishing permits, these are issued by the Ministry of Production after submitting the proper documentation required by this institution. In order to issue the permits, the interested individuals or companies must demonstrate that specific sanitary requirements are met. After the documentation is submitted, the corresponding authority has a period of 30 working days to issue the fishing permit or decline the request. 2.2.5 Technical Barriers to Trade China AQSIQ is a ministerial administrative organ in charge of national quality, metrology, entry-exit inspection, animal and plant quarantine, import and export food safety, certification, accreditation, standardization, and administrative law enforcement. Certification and Accreditation Administration of the People’s Republic of China (CNCA) is the governmental organ established and authorized by the State Council and administered by AQSIQ for management, supervision and overall coordination of certification and accreditation in China. AQSIQ/CNCA sets up the China Compulsory Certification (CCC) system and organizes its implementation, including but not limited to promulgation of CCC product list, designation of conformity assessment bodies, promulgation of category-specific implementation rules for CCC and organization of market surveillance. The major responsibilities of CNCA also include establishment and promotion of national voluntary certification schemes, supervision over accreditation and certification in general, laboratory qualification evaluation, import-export food hygiene registration, management of certification and accreditation related standards, and international cooperation in the areas of certification and accreditation. China Standardization Administration specializes in the management of national standardization, actively participates in the formulation of international standards and the harmonization between international and national standards. In 2001, AQSIQ promulgated The Management Measures of Adopting International Standards, specifying the principles and procedures for adopting international standards. Since 1980, China has always referred international standards as the base for its technical regulations, which develops into an important technical and economic policy. Relevant laws and regulations of China request a review of its technical regulations at least every five years, so as to ensure their fitness for economic development, and their alignment with international standards. According to the Law of Standardization of the People's Republic of China, there are two types of standards in China: mandatory and recommendatory. Mandatory standards in China 23 Peru – China Free Trade Agreement Joint Feasibility Study are directly related to legitimate objectives such as product safety, health and environmental protection and so on, and their implementation is mandatory, which complies with the definition of "technical regulation" under the Technical Barriers to Trade (TBT) Agreement. Relevant information on preparation and revision of mandatory standards, and adopted standards are timely published on AQSIQ Gazette and /or China Standardization and /or the Standardization Administration of the People’s Republic of China (SAC) website. Recommendatory standards in China are in full conformity with standards under the TBT Agreement, and all of them follow the relevant guides and recommendations of International Organization for Standardization (ISO) and International Electrotechnical Commission (IEC). China’s laws and legislations relating to its TBT regime include: Law of the People’s Republic of China on Import and Export Commodity Inspection, Regulations for the Implementation of the Law of the People’s Republic of China on Import and Export Commodity Inspection, Law of the People’s Republic of China on Product Quality, Certification and Accreditation Regulation of the People's Republic of China, Standardization Law of the People’s Republic of China. China’s national TBT enquiry point is located in the Research Center of Standards and Technical Regulations of AQSIQ. Peru Peru’s technical standards are not necessarily comprised by health or public safety minimum requirements, but they can include quality aspects related to the commercial presentation of the product. The National Institute for the Defense of Competition and Protection of Intellectual Property (INDECOPI) is in charge of designing technical standards. In the case of Peru’s technical regulations, which are mandatory rules used by the Peruvian State to regulate the minimum requirements that a certain product must fulfill for safety, public health or environmental reasons and prevent malpractices to induce customers to mistakes in their decisions, the Ministry of Economics and Finance (MEF) is the institution in charge of approving them. In general, Peru’s technical regulations are based on international standards. However, sometimes regional or third-country practices are taken into account, due to differences in the development conditions, technological progress or other reason duly justified. As a WTO member, Peru permanently monitors the practices and procedures Agreement on Technical Barriers to Trade. All the preparation and approval Technical Standards is harmonized with the WTO Code of Good Practice for the Adoption and Application of Standards and compliant with Decision 419 of Community. of the WTO of Peruvian Preparation, the Andean On January 1st, 2005, Peru incorporated the WTO Agreement on Technical Barriers to Trade into its domestic legislation and notified to WTO that INDECOPI’s Technical and Commercial Regulations Commission (CRT) is the entity in charge of implementing the notification procedures under the WTO Agreement on Technical Barriers to Trade. Besides this, CRT’s main responsibilities are the following ones: • • • To approve technical standards for all sectors and regulation on legal metrology. To evaluate and assess public and private entities through accreditation procedures to allow them to offer conformity assessment services. To watch over the compliance of the standards that rule and guarantee properly the development of trade without unnecessary obstacles. Peru participates actively in several forums related to standardization such as the International Organization for Standardization (ISO), International Electrotechnical 24 Peru – China Free Trade Agreement Joint Feasibility Study Commission (IEC) and Codex Alimentarius Commission. Also, Peru participates at a regional level in the Pan American Standards Commission (COPANT) and the Intra American Metrology System (SIM) and at the sub-regional level in the Andean Standardization Commission. 2.3 Services China 2.3.1 China’s Measures Affecting Trade in Services China’s system of laws on trade in services is based on the Foreign Trade Law of the People's Republic of China taking effect on July 1, 2004 (Thereafter referred to as “Foreign Trade Law”). The system includes laws, regulations and rules concerning various sub-sectors of trade in services. The details are listed in the following sub-sectors description. In March 2007, the State Council promulgated The Decision on Further Promoting the Development of Services Industry (No. 7 Document) which clearly defined the main goals, policies and measures of accelerating development of service industries. All of these regulations, rules and policies have provided market access opportunities for foreign services suppliers. As shown by statistics, since 2006, foreign investment into China’s services sectors has accelerated. By the end of 2006, 75000 enterprises had invested in services sectors in China, increasing by 10.6% over the previous year. The number of foreign 10 enterprises in service sector accounted for 27.2% of all foreign investment enterprises . By the end of 2006, the registered capitals of foreign investment in Chinese real estate, business service, software, hi-tech exchange and service promotion sector have been US$ 113.44 billion, US$ 24.86 billion, US$ 8.52 billion, and US$ 74.8 billion, respectively, increased by 25.3%, 58.2%, 41.9%, and 31.4% year on year. Although China has been opening its services sectors gradually and steadily, it still has some quantitative non-discriminatory restrictions, mainly related to technical considerations and national safety, while in certain sectors local presence is required to better protect consumer interests or domestic market stability. China is examining such limitations and exceptions in order to reduce or remove them, as appropriate. A. Business Services - Legal Services China has gradually opened this area and made great progress in recent years. It has eliminated the quantitative and geographical limitations on foreign law firms, and reduced the limitations on years of professional experience of representatives in these firms. China has committed to approve the establishment of representative office of such firms within 9 months. In addition, China has simplified the administrative management, and streamlined the registering procedures. Regarding legal services, the representative office of a foreign law firm can engage in the following businesses and charge its clients for services provided: (1) to provide its clients with consultancy on the legislation of the country/region where the lawyers of the law firm are permitted to engage in lawyer’s professional work, and consultancy on international conventions, commercial laws and practices; (2) to handle, where entrusted by its clients or Chinese law firms, legal affairs of the country/region where the lawyers of the law firm are permitted to engage in lawyer’s professional work; (3) to entrust, on behalf of foreign clients, Chinese law firms to deal with Chinese legal affairs; (4) to enter into contracts to maintain long-term entrustment relations with Chinese law firms for legal affairs; (5) to provide information on the impact of Chinese laws. At present, foreign law firms are not allowed to 10 Source: The State Administration for Industry and Commerce. 25 Peru – China Free Trade Agreement Joint Feasibility Study provide services related to China’s laws, to engage in lawsuit activities, and to employ Chinese professional lawyers. According to the contracts with Chinese law firms, the representative offices of foreign law firms may directly make a request to the entrusted Chinese law firms. Foreign representative offices can charge its clients when conducting businesses, but they and their members are not permitted to interpret Chinese laws to their clients and to employ Chinese lawyers. In this area, the Administrative Regulations on Representative Offices of Foreign Law Firms in China took effect on January 1, 2002 and the Regulations on the Implementation of the Administrative Regulations on Representative Offices of Foreign Law Firms by the Ministry of Justice took effect on September 1, 2002. By the end of 2005, China had granted nearly 200 foreign law firms and 60 Hong Kong law firms, and allowed them to run businesses in several cities to provide offshore and international company law services. Half of the biggest 50 foreign law firms in the world have set up their businesses in China. The competent authority of legal services in China is the Ministry of Justice (http://www.moj.gov.cn). - Accounting and management Consultancy Services China provides foreigners with national treatment, and allows them to run joint venture accounting firms with a majority of shares after they pass the Certified Public Accountants (CPA11) qualifications examination. China allows foreign accounting firms to choose their partners freely, and to engage in profit-making activities, taxation and management consulting services. Under its WTO commitments China allows foreigners to provide business management and consultancy services for domestic enterprises, and to set up branch firms with whole shares. The Ministry of Finance (MOF) released four revised auditing statements covering accounting estimates, inter-bank confirmation, capital verification, and financial statements audit on commercial bank in 2002. The MOF has been active in standardizing accounting procedures. The Chinese Securities Regulatory Commission12 requires that listed companies shall appoint a certified international CPA firm to conduct audits on prospectuses and annual reports in accordance with international standards. Currently, laws and regulations related to foreign accounting firms include: the Administration of Sino-foreign Cooperative Accounting Firms Tentative Procedures; the Provisional Regulations on Representative Offices of Foreign Accounting Firms; the Notice Concerning Permission for International Accounting Firms to Identify Member Firms in China; the Provisional Regulations on Foreign Accounting Firms to Execute Temporary Auditing Business in China; the Regulations of the People's Republic of China on Chinese Certified Public Accountants. The competent authority of Accounting Services in China is the Ministry of Finance (http://www.mof.gov.cn), while the competent authority of Management Consultancy Services is the Ministry of Commerce (http://www.mofcom.gov.cn). - Advertisement Services On December 10, 2005, the Chinese government completely opened advertisement market, in consistency with its commitments to the WTO. Wholly foreign-funded companies are allowed without further restrictions. The Advertising Law of the People's Republic of China has been put into effect. Moreover, the State Council promulgated the Regulation on Foreign- 11 CPA is a professional association with some administrative function under the Ministry of Finance (MOF). For more information on CPA, please visit: http//www.cicpa.org.cn/. 12 The organization belongs to the State Council. For more information, refers to http://www.csrc.gov.cn/. 26 Peru – China Free Trade Agreement Joint Feasibility Study related Advertising Agency. The competent authority of advertisement services in China is the State Administration for Industry and Commerce (www.saic.gov.cn). B. Communication Services - Telecommunications China has made great efforts to open its telecommunications services market. Foreign suppliers are permitted to provide a wide range of services through joint ventures with Chinese companies, including domestic and international wired services, data services and mobile voice, value-added services, such as electronic mail, voice mail and on-line information and database retrieval, and paging services. China has cancelled all geographical restrictions on joint ventures in telecommunication services. The share of the foreign capital permitted in the joint ventures has been increasing, reaching a maximum of 49 percent for most of basic telecommunication services, a maximum of 50% for value-added telecommunication services and calling services of basic telecommunication services On January 1, 2002, China’s Regulations on Foreign-Invested Telecommunications Enterprises went into effect. It defines the requirement of the share holding, registered capital, the Chinese and foreign partners, and licensing procedures. The regulations stipulate that foreign-invested telecommunications enterprises can undertake either basic or value-added telecommunications services. Foreign ownership may not exceed 49 percent in the case of basic telecommunications services (excluding wireless paging) and 50 percent in the case of value-added services (including wireless paging, which is otherwise categorized as a basic service). China also accepted key principles of the WTO Agreement on Basic Telecommunications Services13 when it acceded to the WTO. In order to abide by these key principles and its commitments, China has separated post and telecommunications services, and spilt the state- owned China Telecom14, the country’s largest telecommunications company, into 4 enterprises in 1999. Now, the structure and form of Chinese telecommunication industry have basically formed, and the market share of any one of the 6 biggest companies is no over 50%. In 2006, the Ministry of Information Industry released a serial of regulations: the Management Regulation on the Internet E-mail Service, the Management Regulation on Pollution Control for Electronics Information Products, the Radio Frequency Dividing Rule of People's Republic of China, the Certification Method of Testing and Approving Institutions for Wireless Equipments Shooting Characteristic and so on. The competent authority of Telecommunication Services is the Ministry of Information Industry (www.mii.gov.cn). - Audiovisual Services (Including Film Imports) China’s Regulations on the Management of Film and Regulations on the Administration of Audio-Visual Products went into effect on February 1, 2002. They are designed to bring more transparency and order to the film and audio-visual industries, with an eye to moving toward greater commercial efficiency in accordance with domestic reform efforts and its commitments to the WTO. China allows to import twenty foreign films annually by the type of sub-account opening request under its WTO commitments. China also partially liberalized the distribution of audiovisual products. Joint ventures are allowed to be established. Foreign investors may also provide services in construction or renovation of cinemas with foreign share less than 49.0%. 13 14 WTO Agreement on Basic Telecommunications Services is the Reference Paper on Telecommunication Services. At that time it was a state owned enterprise. At present all six biggest companies becomes the equity companies. 27 Peru – China Free Trade Agreement Joint Feasibility Study The main legislation relevant to this sector is contained in the Industrial Guidance Catalogue for Foreign Investment in China; the Temporary Regulation on Investing in Movie Theater, the Management Regulation on Investing Audio Visual Products, the Management Regulation on Audio Visual Products Distribution for Chinese-Foreign Contractual Joint Venture. The competent authorities of Audiovisual Services are the Ministry of Culture (www.mc.gov.cn) the State Administration for Radio, Film and Television (www.sarft.gov.cn), and the General Administration of Press and Publication (http://www.gapp.gov.cn). C. Distribution and Retailing According to China’s commitment to the WTO, China has canceled the limitations on the location, ownership of a share, quantity for foreign capitals to access the commission agency and wholesales services (excluding salt and tobacco), and the retail service (excluding tobacco), China has also canceled all restricts of charter operation and distribution and retail without the fixed places for the foreign capital. But the chain stores that sale many different categories and brands, in case that their branches are over 30 houses and sale following products: food; cotton; plant oil; sugar; books, newspapers and magazine; pharmaceutical; agrochemical; agriculture film; refined oil; fertilizer; and appointed state-operated trading goods; couldn’t be shared the most equities of the company by foreign capital. On June 1, 2004, the Managing Regulation on Foreign Capital to Invest in Commercial Fields took effect. According to this Regulation, foreign capital retailers are allowed to set up their branches in any cities at provincial level in China. On December 11, 2004 China canceled limitations on business form, location, ownership of a share, and quantity, which means that China allows foreign capitals to invest retail services without any restrictions. In 2005, 1027 foreign businesses were permitted to enter into Chinese market, 3 times as much as that from 1992 to 2004. By the end of November 2006, Carrefour, Wal-Mart, Lotus had totally developed 229 retail stores. The main laws and regulations include: the Experimental Measures for Commercial Enterprises with Foreign Investment; the Regulations on Direct Selling Administration. The competent authority of Distribution and Retail services is the Ministry of Commerce (www.mofcom.gov.cn). D. Construction and Related Engineering Service In September 2002, the Ministry of Construction and former Ministry of Foreign Trade and Economic Cooperation (now referred to as Ministry of Commerce) jointly issued Decrees 113 and 114, which opened up construction and related construction design services to joint ventures with majority foreign ownership and wholly foreign-owned enterprises. On February 13, 2003, they also jointly promulgated the Regulations on the Management of Foreignfunded Urban Planning Service Enterprises which took effect as of May 1, 2003. According to the regulations, all foreign companies, enterprises, other economic entities or individuals are allowed to provide services to urban planning. All foreign companies, enterprises, other economic entities or individuals that hope to specialize in urban planning services in China shall set up Chinese-foreign equity joint ventures, Chinese-foreign contractual joint ventures, or ventures with exclusive foreign investment, and apply for the Certificate of Qualification of Foreign-funded Enterprises for Urban Planning Services. Apart from meeting requirements set in pertinent Chinese laws and regulations on foreign-funded enterprises, the following requirements shall be met for the establishment of foreign-funded urban planning service enterprises: (1) The foreign party shall be an enterprise or professional specializing in urban planning services in its resident country or region; (2) The applicant shall have more than 20 employees specializing in urban planning, architecture, road transportation, gardening and related disciplines, with foreign specialists accounting for no less than 25 percent of this total, and have at least one expatriate technician specializing in urban planning, architecture, road transportation, and 28 Peru – China Free Trade Agreement Joint Feasibility Study gardening respectively; (3) The applicant shall have technical apparatus and fixed work site as stipulated by the State. Since December 1, 2002, wholly foreign-owned enterprises have been permitted, but they can only undertake the following 4 types of construction projects: (1) Construction projects wholly financed by foreign investment and/or grants; (2) Construction projects financed by loans or international financial institutions, and awarded through international tendering according to the terms of loans; (3) Chinese-foreign jointly constructed projects with foreign investment equal to or more than 50.0%, and Chinese-foreign jointly constructed projects with foreign investment less than 50.0% but technically difficult to be implemented by Chinese construction enterprises alone; (4) Chinese invested construction enterprises which are difficult to be implemented by Chinese construction enterprises alone can be jointly undertaken by Chinese and foreign construction enterprises with the approval of provincial government. Above permission is belonging to implementation of China’s commitments to WTO in advance. Since December 1, 2002, the following limitations on national treatments have been eliminated: a) registered capital requirements for joint venture construction enterprises are slightly different from those of the domestic enterprises; b) joint venture construction enterprises have the obligation to undertake foreign-invested construction projects. There are no discrimination treatments for domestic and foreign enterprises to enter in this field. The Administrative Ordinance on Development and Management of Urban Real Estate (Decree No. 248 of the State Council) specifically stipulates that the registration capital and professionals for establishing a real estate development enterprise, and the development and management of real estate. The Administrative Ordinance on Development and Management of Urban Real Estate (Decree No. 248 of the State Council) and the Administrative Regulations on the Qualifications of Real Estate Development Enterprises (Decree No. 77 of MOC) make no specific provisions on the qualification administration of foreign-owned enterprises or joint ventures㸪 with Chinese and foreign enterprises equal in status. The competent authority of Construction and Related Engineering Services is the Ministry of Construction (www.moc.gov.cn). The main regulation is the Regulations on Administration of Foreign-Invested Construction Enterprises. E. Tourism and Travel Services In December 2001, China issued the Regulations on the Administration of Tourist. It allows large foreign travel and tourism service providers to operate full-service joint venture travel agencies in four major foreign tourist destinations in China: Shanghai, Beijing, Guangzhou and Xian. Within six years after accession, wholly foreign-owned firms catering to foreign inbound tourists will be permitted, and all geographic restrictions will be removed. For now, the agencies must have an annual worldwide turnover in excess of US$ 40 million, and local registered capital of almost US$ 500,000. China issued the Provisional Measures for the Interim Provisions on the Establishment of Foreign-Controlled and Wholly Foreign-funded Travel Agencies, effective as of July 2003, and fulfilled its commitments to the WTO in advance. Current laws and regulations include: the Catalogue for the Guidance of Foreign Investment Industries; the Interim Provisions on the Establishment of Foreign-Controlled and Wholly Foreign-funded Travel Agencies, and the Regulations on the Administration of Tourist. The competent authority of travel agency services, the foreign restaurant, hotel and catering services is China National Tourism Administration (www.cnta.gov.cn). 29 Peru – China Free Trade Agreement Joint Feasibility Study F. Financial Services According to its commitment to the WTO, the Chinese government has opened its financial industry mostly in time and partially even in advance. The Chinese government has committed to expand market access and professional scope. Current laws and regulations include: the Law of the Peoples Republic of China on the Peoples Bank of China, the Law of the People's Republic of China on Commercial Banks, and the Regulations of the People’s Republic of China Governing Financial Institutions with Foreign Capital. - Banking Services In December 2003, the Chinese Government increased the stake a single foreign investor can take in a Chinese bank from 15 to 20 percent, with a total combining 24.9 percent allowed for many foreign investors in one Chinese bank, and reduced working capital requirements for various categories of foreign banks by at least RMB 100 million. On December 11, 2006, the Regulations of the People’s Republic of China for the Administration of Foreign Banks were formally enforced. China Banking Regulatory Commission announced that foreign banks could be permitted to establish branches or representative offices in China, and conduct domestic currency business with Chinese enterprises without any geographical limitation. By the end of September 2006, China had already allowed foreign-capital banks to develop RMB business in 25 cities, and the number of the foreign-capital banks permitted to operate RMB business had reached 111. The total amount of asset including RMB and foreign currency had reached US$ 105.1 billion, accounting for 1.9% of total asset of financial institutions in Chinese banking sector. The competent authority of Banking Services is the China Banking Regulatory Commission (Http:// www.cbrc.gov.cn). The banking services are regulated by the Regulations of the People’s Republic of China Governing Financial Institutions with Foreign Capital and its Implementing Rules. - Securities Services China Securities Regulatory Commission issued regulations on the establishment of joint venture fund management companies and securities underwriting by Chinese-foreign joint ventures shortly after China’s WTO accession. Right now foreign securities firms are receiving the right to form joint ventures for fund management upon China’s accession to the WTO and joint ventures for securities underwriting. China has implemented the Provisional Measures on Administration of Domestic Securities Investments of Qualified Foreign Institutional Investors (QFII) and corresponding detailed implementing rules, which set forth the details for QFII’s qualification, criteria, approval procedures, registration and settlement, investment operations, fund management, and so on. Qualified Foreign Institutional Investors are defined in this Regulation as overseas fund management institutions, insurance companies, securities companies and other assets management institutions which have been approved by China Securities Regulatory Commission to invest in China's securities market and granted investment quota by State Administration of Foreign Exchange. Recently China released the revised management regulation on QFII so as to reduce the related limitations and facilitate the QFII. Up to now, China has already implemented all its commitments related to capital market, provided opportunities in sharing China’s economic booming. By the end of November, 2006, China had granted to establish 8 joint venture securities companies and 24 joint venture funds management companies in which there are 11 joint venture funds management with foreign capital equity share reaching 49%. Shanghai and Shenzhen stock exchanges, each with 4 special members, and 39 foreign stock institutes in shanghai and 19 in Shenzhen are operating directly B shares businesses. 30 Peru – China Free Trade Agreement Joint Feasibility Study Since February 1, 2006 China has implemented the Management Regulation on Strategic Investment to the Listed Companies for Foreign Investor, allowing foreign investors to invest companies which have completed the reforming of the ownership of a share. The competent authority of Securities Services is China Securities Regulatory Commission (www.csrc.gov.cn). - Insurance Services The competent authority of Insurance Service is the China Insurance Regulatory Commission (CIRC, http:// www.circ.gov.cn). The insurance services are regulated by the Insurance Service Law. The main law is the Insurance Law of The People's Republic of China. CIRC issued several new insurance regulations in recent years targeting the regulation of foreign insurance companies. The Regulation on Foreign Insurance Company effective as of Feb 1, 2002, stipulated the basic requirement of market access for foreign insurance companies. In August 2003, CIRC issued new draft implementing rules regarding capitalization requirements and transparency. These draft rules clarify licensing procedures and the lowest capital requirements for market access. In he field of insurance China has strictly executed all its commitments to the WTO. So far, insurance industry has been completely opened excepted 2 cases, including: the foreign capital insurance companies are not allowed to operate the business of compulsory automobile liability insurance; life insurance companies must be owned by Chinese-foreign equity joint ventures, where the share of foreign capital will not exceed 50%. G. Transportation - Maritime Transportation The competent authority of Maritime Transportation is the Ministry of Communications (hereinafter referred to as the MOC, Website: Http:// www.moc.gov.cn/). Laws and regulations include: the Regulations on International Maritime Transportation and its Implementing Rules, and the Provisions on Administration of Foreign Investment in International Maritime Transportation. Upon approval of the MOC, foreign investors may, in accordance with relevant laws, administrative regulations and other pertinent provisions of the State, make investment to establish Chinese-foreign equity joint ventures or contractual joint ventures to be engaged in international shipping services, and make investment to establish Chinese-foreign equity joint ventures, Chinese-foreign contractual joint ventures or wholly foreign capital enterprises to offer such routine services as canvassing of cargoes, issuance of bills of lading, settlement of freight and signing of service contracts for their owned or operated vessels; if they have not established any Chinese-foreign equity joint ventures, Chinese-foreign cooperative or wholly foreign capital enterprises within Chinese territory, they must commission a Chinese international shipping agent to undertake the above-mentioned business. In addition, upon the approval of MOC, foreign cooperators of international shipping services may establish representative offices within Chinese territory according to law. The regulations on International Maritime Transportation became effective on January 1, 2002. To be engaged in international liner services, an application shall be submitted to the MOC, and the following documents shall be attached thereto:(1) name of international liner service operator, its registered place of business, photocopy of its business license, and information of its main investor(s); (2) names and identification documents of operator’s main management staff; (3) particulars of vessels under operation; (4) description of intended shipping lines, shipping schedules and ports of call along shipping lines; (5) freight tariff; and (6) sample of its bill of lading, passage ticket or multimodal transport documents. The MOC shall complete examination and verification within 30 days from the date of receipt of the 31 Peru – China Free Trade Agreement Joint Feasibility Study application for international liner services. If application documents are authentic and complete, registration shall be granted, and the applicant shall be notified of the result, or, if application documents are inauthentic or incomplete, no registration shall be granted and the applicant shall be notified in writing, and given the reasons therefore. In recent years China has implemented the International Maritime Transportation Regulation and its supplement administration regulations, and provided a "competing, opening, transparent" market environment for the development of Chinese international maritime transportation. More and more offshore shipping service companies entered Chinese shipping market. Currently, more than 100 offshore containers shipping companies have developed the regular international shipping liners in Chinese ports, and the market share is already over 80%. More than 30 international maritime transportation companies have established about 200 ventures or branches with exclusive foreign investment in China. - Air transportation The Provisions on Foreign Investment in Civil Aviation has come into force as of August 1, 2002. According to the provisions, the scope of foreign ownership in China's civil aviation industry is enlarged, a variety of modes of foreign investment is allowed, and the proportion of foreign ownership is increased while the management power of foreign owners is enhanced. Further liberalizing measures were adopted in 2003, including: further opening the 5th freedom traffic rights to foreign air companies, deliberating and approving in principle “opening the 3rd, the 4th, and the 5th freedom rights scheme”, and launching the work of opening air transportation market in Hainan special economic zone. China has effectively improved market access opportunities for foreign services suppliers in the sector of air transportation. Market access for scheduled international services is determined through bilateral Air Services Agreements. Market access for non scheduled services is determined on a case-by-case basis mainly taking into account the market needs. Foreign airlines, maintenance and repair companies, and aviation manufacturers are permitted to establish joint venture aircraft maintenance and repair companies in China. Foreign ownership of Chinese airlines is permitted up to 49% while a single foreign investor's share should be no more than 25%. Foreign ownership for the airports other than air traffic control systems in China is permitted with Chinese share holders remaining as a majority share holder. Now, foreign citizens are allowed to hold the post of president of Chinese airlines or airports. The designated foreign airlines are allowed to wet lease third country aircraft and crew to operate the agreed services into China, subject to their compliance with the safety requirements set forth by the aeronautical authority of China. The competent authority of Air Transportation is the General Administration of Civil Aviation of China (www.caac.gov.cn). Air Transportation is regulated by the Civil Aviation Law of the People's Republic of China. - Road transportation In November 2002, China issued the Notice on Further Opening the Investment Field of Road Transport to Foreign Investors. Since December 12, 2002, foreign investment has been allowed to enter the fields of road cargo transport, storage, cargo handling, and transport related services. The portion of foreign investment could reach 75.0% in the joint ventures. Project proposal for foreign investment in road transport services and the relevant issues shall be subject to the approval of MOC. The contract and articles of a foreign-invested road transport enterprise shall be subject to the approval of competent foreign trade and economic cooperation department of the State Council. The operation duration of a foreign-invested road transport enterprise shall be no more than 12 years normally. However, the operation duration of a foreign-invested road transport 32 Peru – China Free Trade Agreement Joint Feasibility Study enterprise may be 20 years, provided more than 50.0% of the total investment of the enterprise is used for the construction of infrastructure, such as passenger and goods transport stations and depots. A foreign-invested road transport enterprise, whose business operation is in compliance with industrial policies on and development plans of road transport industry, and which has passed operation qualification (quality and credibility) assessment, may apply for prolongation of operation duration with a period of no more than 20 years each time upon the approval of the competent department which granted the original approving document. A foreign-invested road transport enterprise applying for operation duration prolongation shall submit an application, 6 months in advance of the invalidity of the operation duration, to the competent communications department of a province, where the enterprise is located, and records of operation qualification (quality and credibility) assessment and other relevant documents shall be attached thereto. After being considered and verified by the competent communications department of the province, the documents shall be submitted to MOC and be decided by MOC after consulting with the competent foreign trade and economic cooperation department of the State Council. To suspend, withdraw or terminate a business, a foreign-invested road transport enterprise shall go through the relevant formalities forthwith at MOC, the competent foreign trade and economic cooperation department of the State Council or their authorized department and the industry and commerce administrations. The Ministry of Communications (www.moc.gov.cn) is in charge of road transportation which is regulated by the Management Regulation on Foreign investment in Road Transportation and its supplementary regulations. Table 2.2 Regulations related to Trade in Services Regulation Regulations on Administration of Foreign-Funded Financial Institutions Regulations on International Maritime Transportation Regulations on Administration of Travel Agencies Date Effective 1 Feb 2002 Effective 1 Feb 2002 Amended 11 Dec 2001 Measures on the Trial of Foreign-Invested Merchandising Enterprises Effective 25 Jun 1999 Provisional Regulations Governing the Foreign Invested Movie Theater Effective 25 Oct 2000 Rules for Establishing Foreign-Invested Securities Companies Effective 1 Jun 2002 Rules for Establishing Foreign-Invested Fund Management Companies Effective 1 Jun 2002 Proclamation by the People's Bank of China on the Related Issues of Foreign-Funded Financial Institutions' Market Access Effective 9 Dec 2001 Regulations on Administration of Foreign Funded Insurance Companies Effective 1 Feb 2002 Measures for Administration of Representative Offices of Foreign-Capital Financial Institutions in China Effective 18 July 2002 Provisions on Administration of Foreign Investment in Road Transport Sector Effective 20 Nov 2001 Provisions on Administration of International Freight Forwarding Agency Enterprises with Foreign Investment Effective 1 Jan 2003 Regulations on Administration of Foreign Invested Telecommunications Enterprises Effective 1 Jan 2002 Regulations on Exploitation of Offshore Petroleum Resources in Cooperation with Foreign Enterprises Effective 23 Sep 2001 Regulations on Exploitation of On-shore Petroleum Resources in Cooperation with Foreign Enterprises Effective 23 Sep 2001 Implementing Rules of the Regulations of the People’s Republic of China on International Maritime Transportation Effective 1 Mar 2003 Measures for the Administration of Foreign-invested International Freight Forwarding Agencies Effective 10 Jan 2003 Measures Governing Foreign Invested Distribution Enterprises for Books, Newspapers and Periodicals Effective 1 May 2003 Interim Regulations on the Establishment of Travel Agencies with Foreign Majority Ownership and Wholly Owned by Foreign Investors Effective 11 July 2003 33 Peru – China Free Trade Agreement Joint Feasibility Study Administrative Rules Governing the Auto Financing Companies Effective 3 Oct 2003 Regulations of the People’s Republic of China on Chinese-Foreign Cooperation in Running Schools Effective 1 Sep 2003 Implementing Rules of the Regulations on the Administration of Foreign-funded Financial Institutions Effective 1 Feb 2002 Provisional Rules on the Establishment of Sino-Foreign Foreign Trade Companies Effective 2 Mar 2003 Rules Governing the Foreign Invested Urban Planning Service Enterprises Effective 1 May 2003 Regulations on the Administration of Foreign Invested Architectural and Engineering Enterprises Effective 1 Dec 2002 Regulations on the Administration of Foreign Invested Construction Enterprises Effective 1 Dec 2002 Notice on Issues Relating to the Experimental Establishment of Foreign Invested Logistic Enterprises Effective 20 Jul 2002 Implementation Rules for the Administrative Measures on Auto Financing Companies Effective 12 Nov 2003 Regulations on the Administration of Representative Office of Foreign Law Firms Effective 1 Jan 2002 Implementation Rules for the Regulations on the Administration of Representative Office of Foreign Law Firms Effective 1 Sep 2002 Provisional Measures on the Administration of Domestic Securities Investment of Qualified Foreign Institutional Investors (QFII) Effective 1 Dec 2002 Provisional Provisions on Operational Qualification Access to Film Producing ,Releasing and Projecting Effective 1 Dec 2003 Administrative Measures on Chinese-Foreign Cooperative Enterprises for the Distribution of Audio and Video Products Effective 1 Jan 2004 Supplementary Provisions to the Provisional Measures of Registering and Approval of Foreign Nationalities to Chinese CPA Effective 1 Jan 2004 Implementation Rules for the Regulations on the Administration of International Freight Forwarding Agencies Effective 1 Jan 2004 after amendment Administrative Measures on the China-based Representative Offices of Foreign Insurance Institutions Effective 1 Mar 2004 Administrative Measures on Foreign-funded Advertisement Enterprises Effective 2 Mar 2004 The detail regulation for Foreign capital financing institution Effective 1 Sep, 2004 The stock certificate investor protection fund manages the way Effective 1 Jul, 2005 The management rule for QFII Effective 1 Sep 2006 Foreign capital bank management regulation Effective 11 Dec 2006 Foreign capital bank management regulation Effective 11 Dec 2006 The management rule for QFII Effective 1 Sep 2006 Basic rule for enterprise accountancy standard after revising Effective 1 Jan 2007 The supplement rule on foreign company investing books, newspaper, periodical retail business Effective 1 May, 2007 Effective 1 Jun 2007 (revised) The management rule on the representative of offshore stock exchange Effective 1 Jul 2007 Source: edited according to Foreign Economic and Trade Gazette of MOFCOM of the People’s Republic of China The management rule on registering partnership enterprise registers 2.3.2 China’s International Commitments related to Services As a result of the Uruguay Round, commercial disciplines extended beyond those related to trade in goods to cover areas such as services, investment and intellectual property. After entry to WTO, China has continued to participate in WTO working groups on services and investment. Under the GATS, China maintains horizontal commitments on mode 3 (commercial presence) and mode 4 (movement of natural persons).China allows the entry and temporary stay of employees of a corporation of a WTO Member for an initial period not longer than 3 years. 34 Peru – China Free Trade Agreement Joint Feasibility Study In China, foreign invested enterprises include foreign capital enterprises (also referred to as wholly foreign-owned enterprises) and joint venture enterprises. There are two types of joint 15 venture enterprises: equity joint ventures and contractual joint ventures . The proportion of foreign investment in an equity joint venture shall be no less than 25 per cent of the registered capital of the joint venture. The establishment of branches by foreign enterprises is unbound, unless otherwise indicated in specific sub-sectors. Representative offices of foreign enterprises are permitted to be established in China, but they shall not engage in any profitmaking activities except for the representative offices under CPC 861, 862, 863 and 865 in the sector specific commitments. The conditions of ownership, operation and scope of activities, as set out in the respective contractual or shareholder agreement or in a license establishing or authorizing the operation or supply of services by an existing foreign service supplier, will not be made more restrictive than they exist as of the date of China's accession to the WTO. The land in the People's Republic of China is State-owned. Use of land by foreign invested enterprises, domestic enterprises and individuals is subject to the limitations: 70 years for residential purposes, 50 years for industrial purposes, 50 years for the purpose of education, science, culture, public health and physical education, 40 years for commercial, tourist and recreational purposes, and 50 years for comprehensive utilization or other purposes. Regarding the sector classification, China adopted commitments in 9 of the 12 sectors of GATS16: Business Services, Communication Services, Construction and Related Engineering Services㸪 Distribution Services, Education Services 㸪 Environmental services 㸪 Financial Services, Tourism and Travel Related Services and Transportation Services. The openness of service sectors in China can be measured by its commitments under GATS. One method is to compute the sector coverage ratio. There are 12 major categories of service sectors and 155 sub-sectors covered by GATS. The sector coverage ratio is the number of committed sub-sectors divided by the total number of sub-sectors of each sector17. Table 2.3 China’s Sector Coverage under GATS (%) Sector China All Sectors 54.2 Business Services 60.9 Communication Services 66.7 Construction and Related Engineering Services 100.0 Distribution Services 100.0 Education Services 100.0 Environmental services 100.0 Financial Services 76.5 Health services 0.0 Tourism and Travel Related Services 50.0 Entertainment Services 0.0 Transport Services 17.1 Other services 0.0 Note: calculated according to WTO schedule of commitments by China. China made 100% commitments in construction, distribution, education and environmental services. In business and financial services, China’s sector coverage is high. 15 The terms of the contract, concluded in accordance with China's laws, regulations and other measures, establishing a "contractual joint venture" govern matters such as the manner of operation and management of the joint venture as well as the investment or other contributions of the joint venture parties. Equity participation by all parties to the contractual joint venture is not required, but is determined pursuant to the joint venture contract. 16 The sector analysis is based on the WTO document GNS/W/120, Services Sectors Classification List. 17 Each sub-sector or further subdivisions are taken into account, when possible. 35 Peru – China Free Trade Agreement Joint Feasibility Study However, sector coverage alone is not sufficient to depict the degree of market openness. We need to look at what the specific commitments are. There are four modes of supply for trade in services. Making commitments in one mode is obviously different from making commitments in all modes of supply. There are also different levels of commitments, namely, unconditional commitments, limited commitments and no commitments (unbound). Therefore, one could construct an openness index based on different modes of supply and different levels of commitments to complement the results of sector coverage. In order to comprehensively analyze impacts of the WTO Specific Commitments in Services made by China under the GATS, we follow the methodology developed by Bernard Hoekman in “Tentative First Steps: An Assessment of the Uruguay Round Agreement on Services” (1995). Based on the WTO document GNS/W/120, Services Sectoral Classification List, Hoekman quantifies the specific commitments of different countries in the GATS to compare the different levels of liberalization of services sectors. Considering the restriction applies to Market Access (MA) and/or National Treatment (NT) in any sub-sectors or in any of the 4 modes of supply, commitments can be classified into 3 categories: (1) None (no restrictions for the sector), (2) Some restrictions apply or (3) Unbound (no liberalization commitments for the sector). To estimate the scope of sector commitments, numbers “1”, “0.5” or “0” are assigned, respectively to each case (weighting methodology A). Because this kind of restrictions hinder trade as more commitments of this type are undertaken, it can be helpful to use “n” as the exponent of 0.5, where “n“ represents the number of specific restrictions applied in each sub-sector. Therefore, a sub-sector with a larger number of commitments qualified as “Some Specific Restrictions” will be graded with a lower liberalization indicator: a sub-sector with two specific commitments will have a liberalization indicator of 0.5^2 (or 0.25) and a sub-sector with four specific commitments will have a liberalization indicator of 0.5^4 (or 0.125). The other two kinds of commitments: “None” and “Unbound” keep the same weighting (weighting methodology B). With these values, the degree of the liberalization in services of China has been evaluated with the use of index numbers obtained by adding up all the values. The higher the index number resulting from the total sum shows, the deeper the level of liberalization is. Table 2.4 shows the possible quantity of China’s commitments undertaken in each sector. Each sector has three columns: the first one (it/Q) related to the number of commitments undertaken as a percentage of the total-possible number of commitments undertaken by sector; and the second and third ones regarding the weighted sum of the commitments by their level of liberalization, taking into account the two different weighting methodologies. Table 2.4 China’s Openness Index Based on GATS Commitments (%) Sector Q Item It/Q Sum1/Q sum2/Q Business Services 368 44.02 62.64 62.38 Communication Services 192 40.63 60.68 45.71 Construction and Related Engineering Services 40 50.00 34.38 34.38 Distribution Services 40 65.00 53.75 52.81 Education Services 40 62.50 43.75 39.59 Environmental services 32 75.00 62.50 62.50 Financial Services 136 21.32 17.28 15.75 Health Services 32 0.00 0.00 0.00 36 Peru – China Free Trade Agreement Joint Feasibility Study Tourism and Travel Related Services 32 40.63 34.38 32.55 Recreational, Cultural and Sporting Services 40 0.00 0.00 0.00 Transport Services 280 21.43 18.04 16.89 Other Services 8 0.00 0.00 0.00 Total 1240 35.24 40.71 37.67 Note: Q Items: Total Quantity of possible Commitments (Score from Hoekman if all possible sectors and sub-sectors were liberalized for MA and NT in all modes); IT/Q: Number of Commitments made in the sector for MA and NT in all modes/Q (Percentage of Commitments made as a share of Q); SUM1/Q: Percentage of Commitments made (weighted by the score of each category “0”, “0.5”or “1”) using weighting methodology A; SUM2/Q: Percentage of Commitments made using weighting methodology B. Considered the methodology is in terms of the quantity of the commitments instead of quality, the calculating results could be references in statistics but couldn’t really and exactly reflects the liberalization degree of service sectors. It is also helpful to make cross-comparisons by modes of supply, specific sectors and subsectors. Table 2.5 shows results. In Business Services Sectors, China made commitments on Professional Services (Legal, Accounting, Auditing and Bookkeeping Services, Taxation, Architectural and Engineering), Computer and Related Services, Real Estate Services and Other Business Services. Regarding the services mentioned, China made full commitments on Modes I and 2, and partial commitments on Mode 3. In Communication Services Sectors, China made commitments on sub-sectors of Telecommunication services, including Courier Services, Telecommunication Services and Audiovisual Services. On each of the sub-sectors listed, China made partial MA commitments on Modes 1, 2 and 3, full National Treatment (NT) commitments on Modes 1, 2 and 3 and no NT commitments on Mode 4. In Construction and Related Engineering Services sectors, China made commitments on subsectors of CPC 511, 512, 513, 514, 515, 516, 517 and 518. On each of the sub-sectors listed, China made full commitments on Modes 2, partial commitments on Modes 3 and no commitments on Mode 1 and Mode 4. 37 Peru – China Free Trade Agreement Joint Feasibility Study Table 2.5 China’s Openness Index Based on GATS Commitments (%) Methodology A Methodology B Sector Q item Mode1 Mode2 Mode3 Mode4 Mode1 Mode2 Mode3 Mode4 Business Services 46 87.0 90.8 65.8 7.1 85.1 90.8 68.5 5.2 24 26.0 33.3 71.9 0.0 21.2 33.3 44.7 0.0 5 0.0 100.0 37.5 0.0 0.0 100.0 37.5 0.0 Distribution Services 5 50.0 100.0 65.0 0.0 50.0 100.0 61.3 0.0 Education Services 5 0.0 100.0 25.0 50.0 0.0 100.0 25.0 33.4 Environmental Services 4 75.0 100.0 75.0 0.0 75.0 100.0 75.0 0.0 Financial Services 17 20.6 27.9 20.6 0.0 18.1 27.9 16.9 0.0 Health Services 4 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 4 50.0 50.0 31.3 6.3 50.0 50.0 24.0 6.3 5 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Transport Services 35 16.4 34.3 20.0 1.4 15.2 34.3 17.3 0.7 Other Services 1 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Total 155 40.6 56.5 44.3 4.2 38.8 56.5 39.6 2.9 Communication Services Construction and Related Engineering Services Tourism and Travel Related Services Recreational, Cultural and Sporting Services Note: Modes of Supply include (1) Cross Border Supply, (2) Consumption Abroad, (3) Commercial Presence and (4) Movement of Natural Persons. Considered the methodology is in terms of the quantity of the commitments in stead of quality, the calculating results could be references in statistics but couldn’t really and exactly reflects the liberalization degree of service sectors. In Distribution Services sectors, on all 5 sub-sectors (Commission Agents Services18, Wholesale trade services19, Retailing Services20, Franchising, Wholesale or Retail trade services away from a fixed location), China made full commitments on Mode 2, partial commitments on Mode 1 (Hoekman’s index gives a result of 50%) and Mode 3 (Hoekman’s index gives a result of 65%) and no commitments on Mode 4. In Education Services Sectors, on all 5 sub-sectors including Primary, Secondary, Higher, Adult and Other education services, China made full MA commitments on Modes 2, partial commitments on Modes 3 and 4, fully NT commitments on Modes 2, partial NT commitments on Modes 4 and no NT commitments on Mode 3. It should be point out that Education Sector has the highest Hoekman’s index (50%) in Mode 4 compared with other 11 sectors. In Environmental Services Sectors, on all sub-sectors including Sewage Services, Solid Waste Disposal Services, Cleaning Services of Exhaust Gases, Noise Abatement Services, Nature and Landscape Protection Services, Other Environmental Protection Services, Sanitation Services, China made full commitments on Modes 2, and partial commitments on mode 1 and 3. In Financial Services Sectors, commitments were made on almost all sub-sectors (All Insurance and Insurance Related Services, Banking and Other Services, Securities etc.). In each of the sub-sectors listed, China made partial or full MA commitments on Modes 1, 2 and 3. Regarding NT, China made almost full commitments on Modes 1, 2 and 3. The Hoekman’s indexes are not so high (about 20%) in Mode 1, Mode 2 and Mode 3. 18 19 20 Excluding salt and tobacco. Excluding salt and tobacco. Excluding tobacco. 38 Peru – China Free Trade Agreement Joint Feasibility Study In Tourism and Travel Related Services Sectors, China made commitments on sub-sectors, such as Hotel (including apartment buildings) and Restaurants, Travel Agencies and Tour Operators. On the aspect of market access and national treatment, the openness level on Mode 1 and Mode 2 are 50%, on Mode 3 is 31.1% and Mode 4 is 6.3%. In Transport Services Sectors, China made commitments on Maritime Transport Services, Auxiliary Services, Internal Waterways Transport, Air Transport Services, Rail Transport Services and Road Transport Services on all Modes. China made full commitments on Mode 2, partial commitments on Mode 1 and Mode 3 and made partial commitments on International transport of Maritime Transport Service on Mode 4. Peru 2.3.3 Peru’s Measures Affecting Trade in Services A. Professional Services Peru does not have a General Statute concerning Professional Practice. There are 22 regulated professions in the country whose regulation is granted by the Government to the Professional Associations. In these professions, the fulfillment of the requirements and regulations (which include the revalidation of degrees granted overseas) and the inscription to a Professional Association, and the, is a mandatory requirement to provide the service. The National Assembly of Rectors21, through its Office of Recognition, Certification and Legalization of Degrees and Titles is in charge of revalidation of degrees granted by foreign universities. Once the procedure for revalidation is finished, professionals must start procedures for its inscription to a Professional Association. In the cases in which Peru counts on agreements with other countries, ANR recognizes the degrees according to the established in those Agreements. Until the end of 2006, Peru had bilateral agreements on this matter with 25 countries22. - Legal services23 The legal profession in Peru has the Law of the Professional Exercise of Lawyers and of the Creation of the Bar Associations as legal frame, which grants power to Department Bar Associations (professional bodies) to regulate the professional exercise of their associates. There are is no nationality or previous residency requirements to obtain a lawyer license (valid in the whole territory) or restrictions to foreign investment in companies which provide legal services, except in the case of notaries which must be practiced by Peruvian nationals. In order to provide legal services in Peru, professionals must be qualified members of the respective Departmental Bar Association, must be registered in the judicial district where the service will be provided and must have a professional degree granted by a national university or a professional degree granted by a foreign university and revalidated in Peru. In the case of a foreign supplier of legal services, it is necessary to attend a 1-year course offered by some universities24 to revalidate the law degree. In case of Mutual Recognition Agreements, the titles and degree are recognized in accordance with the obligations of that Agreement. The main regulatory instruments are: 21 For further information, please visit : http://www.oei.es/homologaciones/peru.pdf. Argentina, Brazil (for professionals that started university until January 14th, 1999), Bulgaria, Colombia, Costa Rica, Cuba, Chile, China, Czechoslovakia (until its dismemberment and Czech Republic and Slovakia) Ecuador, El Salvador, Spain, Guatemala, Honduras, Hungary, Mexico, Nicaragua, Panama, Paraguay, Rumania, Santa Sede, the Ukraine, Uruguay, Venezuela 23 For further information, please visit: Lima Bar Association – CAL (www.cal.org.pe) National Assembly of Rectors – ANR (www.anr.edu.pe) 24 The two universities in charge of this procedure, as of today, are: Universidad Nacional Mayor de San Marcos and Pontificia Universidad Católica del Perú. 22 39 Peru – China Free Trade Agreement Joint Feasibility Study • • • Law of the Professional Exercise of Lawyers and of the Creation of the Bar Associations (1910) Royal Decree of January, 22 1811 (Creation of the Lima Bar Association) Status and bylaws of the respective Bar Associations - Accounting and Auditing Services25 Accounting and auditing Services in Peru are regulated by the Law of the Professional Practice of Public Accountants and of the Creation of the Public Accountants Associations, which grant power to Departmental Public Accountants Associations (professional bodies) to regulate the professional exercise of their associates. The Deans' Board of Public Accountants of Peru26, institution of public right, is the maximum representative organism of the profession of Public Accountant. Their functions include to coordinate the institutional work of the Departmental Associations and to establish the requirements of membership in these associations. There is no nationality or previous residency requirements to obtain neither a public accountant license (valid in the whole territory) nor restrictions to foreign investment in companies which provide accounting services. However, auditing services companies must be constituted only and exclusively by a public accountant resident in the country and qualified by the respective Public Accountant Association. In order to provide public accounting services in Peru in a dependent way (private or public firms) or independently (independent auditors and bookkeepers), professionals must be qualified members of his/her respective Departmental Public Accountant Association. The basic qualification requirement is to hold a Professional title of Public accountant granted by a Peruvian university, or revalidated in the country, in agreement with the legal dispositions on the matter. - Engineering Services27 Engineering services in Peru are regulated by the Law of the Professional Exercise of Architects and Engineers. This law grants power to the Peru’s Engineer Association to regulate the professional exercise of their associates. There is no nationality or previous residency requirements to obtain neither an engineering license (valid in the whole territory) nor restrictions to foreign investment in companies which provide engineering services. In order to provide engineering services in Peru, including teaching, professionals must be qualified members of Peru’s Engineer Association and must have a professional degree granted by a national university or by a foreign university and revalidated in Peru. This professional degree is obtained by taking a professional examination, a thesis or a combination of both and issued, revalidated or acknowledged by Peruvian laws. Also, it is necessary to present documents that ensure the absence of a criminal record. Foreign professionals or nationals with a degree obtained overseas have to pay to Peru’s Engineer Association, a greater registration fee than the ones for Peruvian professionals with a degree obtained in Peru. In the case of non-resident foreign engineers, it is necessary to have a contract signed by a company established in the country. Likewise, engineers with a degree obtained overseas can provide engineering services on a temporary basis in the Peruvian Territory by means of inscription in the Record of Temporary Practice. --. 25 For further information, please visit: Deans’ Board OF Societies of Public Accountants of Peru (www.jdccpp.org) 26 For Further information, please visit : http://www.ccpl.org.pe/. 27 For further information, please visit: Peru’s Engineer Association – CIP (www.cip.org.pe) 40 Peru – China Free Trade Agreement Joint Feasibility Study Other main regulatory instrument is the Statute of Peru’s Engineer Association (Last edition: 2005). - Architectural Services28 Peru’s Architects Association regulates the professional practice of their associates, based on the Law of the Professional Exercise of Architects and Engineers. There are no nationality or previous residency requirements to obtain a license (valid in the whole territory), nor restrictions to foreign investment in companies which provide engineering services. To provide architectural services in Peru, professionals must be qualified members of Peru’s Architects Association, including foreign architects working in dependent or independent way or providing services in a temporary basis, in the public or private sector. Architects must show absence of criminal records. Architects must have a professional degree granted by a national university or by a foreign university and revalidated in Peru, according by Peruvian laws. If there is an International Agreement of Reciprocity in the Professional Practice of Architects between Peru and the country where the applicant studied, it is not necessary to revalidate the title or degree. Architects with a degree obtained overseas can provide architectural services on a temporary basis in the Peruvian Territory by means of inscription in the Record of Temporary Practice without need of revalidation of the title, If there is an International Agreement of Reciprocity in the Professional Practice of Architects between Peru and the country where the applicant studied . -The minimum period by which it is granted is three months and the maximum is twelve months renewable once up to twelve months. Architects are required to enroll in Peru’s Architects Association. Fees are greater for foreign professionals. Other regulatory instruments are: • • Statute of Peru’s Architects Association National Regulation of Registration in Regional and Zonal Peru’s Architects Associations (2007) - Other (Health-related Professions)29 The General Law of Health is the main legal frame regulating Health-related professions in Peru. According to it, to provide business services related to health, professionals must have a professional degree and be qualified members of the respective professional association. The license granted by these societies is valid in the whole territory. There are no restrictions or discriminatory treatment to foreign entry in health professional services. a) Medical Services30 Medical services are regulated by the Law of the Creation of the Medical Society and the Law of Medical Work, which control the practice of the medical profession and grant powers to the Medical Association of Peru as autonomous entity of internal public law. The Medical Association of Peru implements its professional regulation through the National Council and six Regional Councils. 28 29 30 For further information, please visit: Peru’s Architects Association – CAP (www.cap.org.pe) For further information, please visit: Ministry of Health – MINSA (www.minsa.gob.pe) For further information, please visit: Medical Association of Peru – CMP (www.cmp.org.pe) 41 Peru – China Free Trade Agreement Joint Feasibility Study In order to provide medical services in Peru, professionals must be qualified members of the Medical Society of Peru and must hold a professional degree granted by one of the Faculties of Medicine of the country, or confirmed in some of the National Universities, in agreement to the laws, except express exoneration of this requirement through an international agreement, in which the corresponding reciprocity will have to be proved. b) Veterinary Services31 According to the Law of the Creation of the Veterinary Medical Association of Peru, the Veterinary Medical Association of Peru is in charge of regulating the professional practice of the veterinary services in the country. In order to provide medical veterinarian services in Peru, professionals must be qualified members of the Medical Veterinarian Society of Peru and must have a professional degree. c) Nursery Services32 Nursery services have the Law of the Work of the Nurse as legal frame, which regulates this profession in all the dependences of the Public National Sector, as well as the ones in the private sector. In order to provide nursery services in Peru, professionals must be qualified members of the Peru’s Nurses Association and must have a professional degree granted by a recognized University of the country. In case of nurses graduated abroad, previous revalidation of the degree is necessary, according to the procedure established for such purpose. d) Dental Services33 Dental services in all the dependences of the public and private sector are regulated by the Law of the Creation of the Dentistry Association of Peru and the Law of the Work of the Dentist. The Dentistry Association of Peru has the powers to regulate the practice in the country. In order to provide dentistry services in Peru, professionals must be qualified members of the Dentistry Association of Peru and must have a professional degree acknowledged by Peruvian Laws. In the case of dentists, nationals or foreigners, with a degree conferred abroad, the basic qualification requirement demanded by the Dentistry Association of Peru to practice the profession is a degree acknowledged by National Assembly of Rectors and revalidated by a Peruvian university. B. Communication Services34 - Postal Services The General Office of Postal Services (DGSP) of the Ministry of Transportation and Communications (MTC) is in charge of the regulation of the sector and has as objectives the promotion of investment in the sector, the universal access of postal services and the development of the postal market. The provision of postal services is granted in direct concession by the MTC without the need of public tenders. In the case of foreign company wishes to obtain the concession, it will have to be constituted in Peru in any of the enterprise forms allowed by the Law and it will specifically be put under the laws and courts of the Republic, resigning to all diplomatic claim. 31 For further information, please visit: For further information, please visit: 33 For further information, please visit: Rectors – ANR (www.anr.edu.pe) 34 For further information, please visit: 32 Veterinary Medical Association of Peru – CMVP (www.cmvp.org.pe) Peru’s Nurses Association – CEP (www.cep.org.pe) Dentistry Association of Peru – COP (www.cop.org.pe), National Assembly of Ministry of Transportation and Communications – MTC (www.mtc.gob.pe) 42 Peru – China Free Trade Agreement Joint Feasibility Study Concession is given through a contract, in a temporary and non-transferable basis. The provision of postal services given in a concession is granted for a minimum of 5 years and a maximum of 20 years (renewable).There are four types of concessions, according to the scope: • Local: In the geographic area of a province, except for the case of Lima and Callao that constitutes a single postal unit. Regional: In the geographic area of a region. National: In the geographic area of all the country. International: It includes the faculty to send to and receive from outside the postal shipments, from and towards any geographic area of the country. • • • There is no discrimination between nationals and foreigners in postal services. However, foreign providers or companies are required to be recognized in accordance with domestic regulations and must have local commercial presence and legal address in Peru. - Express Delivery Services Express delivery services are provided under the legal frame of postal services. According to this, the provision of express delivery services given in a concession is granted for a minimum of 5 years and a maximum of 20 years (renewable). The Ministry of Transportation and Communications awards the concessions on this matter at local, regional, national or international levels. Services providers can be either domestic or foreign. Foreign providers or companies are required to be recognized or incorporated in accordance with domestic regulations, hold a legal address in Peru and have a local commercial presence. The provision of this service is guided by the principle of freedom of transit established by the Universal Postal Union. - Telecommunication Services35 The main legislative instruments governing Peru’s telecommunications services are the Law of Telecommunications; Guidelines of Openness Policy of Peru’s Telecommunications Market; Law of Single Concession for the Provision of Public Services of Telecommunications; and Guidelines for the Development and Strengthening of the Competence and the Expansion of the Public Services of Telecommunications36. The current legislation assures open competition in the Peruvian telecommunications sector and its regulation is focused in controlling abuse of market power and restrictive practices. Likewise, there is no discriminatory treatment to foreign investors or providers which, in order to provide public telecommunication services, must have local presence. The Ministry of Transportation and Communications (MTC) and Supervisory Agency for Private Investment in Telecommunications (OSIPTEL) are responsible for the legislation and administrative procedures in telecommunications sector. MTC is in charge of market access; assignation and control of the radio electric spectrum; management of the Investment Fund in Telecommunications (FITEL), the National Plan of Telecommunications, the National Plan of the Awarding of Frequencies, the adoption of regulation and the approval of equipments, inspections and sanctions. OSIPTEL is in charge of overseeing user rates, competition, interconnection and service quality and imposing sanctions. Also, OSIPTEL administers arbitration processes and dispute mediation between companies providing telecommunication services. 35 For further information, please visit: Supervisory Agency for Private Investment in Telecommunications OSIPTEL (www.osiptel.gob.pe) 36 A complete list of laws concerning to telecommunications services is available in the following web page: www.mtc.gob.pe/indice/comunicaciones.asp#c1 43 Peru – China Free Trade Agreement Joint Feasibility Study MTC classifies telecommunication services into categories that are granted either under concession or authorization: • • • • Carrier services: Involves essential facilities (networks). Given under concession. Final services: (such as phone services). Public services are given under concession. Cable services. Given under concession. Broadcasting services (such as TV and radio): Require authorization of MTC. These services are considered private services of public interest. The assignation of the radio electric spectrum proceeds when a concession or authorization is given. - Audiovisual Services37 The main legislation relevant to Peru’s audiovisual sector is contained in the Law of Radio and Television (2004) for broadcasting services38 and the Law of the Peruvian Motion Picture (1995) for motion picture production, distribution and projection services. Other audiovisual services such as video tape production and distribution services and sound recording are mostly unregulated. Policy responsibility for Peru’s audiovisual sector rests on the Ministry of Transportation and Communications (MTC) and the National Culture Institute (INC) through the National Council of Motion Pictures (CONACINE). Broadcasting services (television and radio) are considered private services of public interest and its provision requires an authorization of the MTC. Only Peruvian nationals and corporate bodies organized under the laws of Peru may hold authorizations or licenses to supply free over-the-air broadcasting services. A foreigner may not hold such an authorization or license, either directly or through a one-person company. Foreign citizens may hold no more than 40 percent of the capital of a corporate body that holds such an authorization or license. Such foreign citizens must be owners of or have interest or shares in a free over-the-air broadcasting enterprise in the territory of the country of which they are a national. Likewise, broadcasting enterprises of free over-the-air signal must dedicate at least 10% of their daily programming to the diffusion of folklore, national music and television programs related to Peruvian history, literature, culture or national reality, performed by artists hired according to the Law of the Artist. Also, broadcasting enterprises must dedicate at least 30% of its programming to local production, in the schedule between 5:00 a.m. and 12:00 p.m., on average each week. Peruvian law establishes that 80% of artists and film technicians taking part in any production have to be nationals. Some others exclusions apply in relation to some specific personnel. By the other side, in motion picture production, distribution and projection services, some domestic regulation is applicable for the production of Peruvian films (some local government requirements and permissions to film in certain places, such us natural protected areas, archaeological sites, and historic monuments, among others). All motion picture works shall certify a written contract with the holder of the economic rights of that work in order to be distributed and projected. In addition, 80% of artists and film technicians taking part in any production have to be nationals and only national movies can win the National Prize of Motion Picture granted by CONACINE. C. Construction Services39 The Peruvian building and construction sector is required to comply with regulations at the Central and Local government levels. The key regulation for building and construction that 37 For further information, please visit: National Council of Motion Pictures (www.conacine.com.pe) A complete list of laws concerning to broadcasting services is available in the following web page: www.mtc.gob.pe/portal/comunicacion/concesion/radiodifusion/carauto.pdf 39 For further information, please visit: Ministry of Home, Construction and Sanitation (www.vivienda.gob.pe) and Superior Council of Government Procurement: (www.consucode.gob.pe) 38 44 Peru – China Free Trade Agreement Joint Feasibility Study applies nationwide is the National Regulation of Construction and public and private constructors can carry out any kind of construction works, provided they have permission from the local City Hall. The Law of Promotion of the Private Investment in Construction promotes construction activities whose works cost no more than 50 Tax Units (172,500 nuevos soles, approximately US$ 54,416)40 and included in the Division 5 of the International Standard Industrial Classification (ISIC) of the United Nations. These construction services can be provided by natural and juridical persons, nationals and foreigners. Also, the Law of Promotion of Private Investments in Infrastructure of Public Services fosters private investment in infrastructure and regulates its exploitation. Central, Regional and Local Governments can grant concessions to juridical persons, nationals or foreigners for the construction, repairing, conservation and exploitation of public services. Transportation, environmental sanitary, energy, health, education, telecommunications, tourism, recreational and urban infrastructure are the sectors included in these concessions. Public bids are open to all bidders, foreign and nationals, which have to be registered at the National Register of Providers (www.consucode.gob.pe). However, extra points are given to nationals offering their bids. D. Distribution Services Distribution services are highly unregulated by the Central Government. The Law of the Consumer Protection establishes the obligations of the providers of distribution services in the national territory. The Commission of Consumer Protection is the only administrative competent body able to impose administrative sanctions and corrective policies in case of infractions to the dispositions on this Law41. The Organic Law of City Halls grants power to the Local Governments (more than 1,700) to give licenses to open distribution services and to apply fines, suspension of authorizations or licenses, closing, confiscation, retention of products and furniture, retirement of elements forbidden by rules, demolition, seizure of vehicles, immobilization of products, among others. Local Governments can arrange transitory or definitive closing of distribution services establishments if their operations are legally prohibited; they constitute danger or risk for the public safety and private property; infringe the regulation procedures; produce smells, smokes, noises or other harmful effects. Likewise, Local Governments regulate distribution of food and drinks, in conformity with the national rules on the matter. In coordination with the Ministry of Health, Ministry of Agriculture, INDECOPI and Public Ministry, they can arrange the confiscation of adulterated, fake articles of human consumption or in condition of decomposition; products that constitute a danger against life or health and other articles whose commercialization or consumption is prohibited by law. E. Educational Services42 The main legislation relevant to Peru’s education sector is contained in the General Law of Education (2003), which regulates all educational activities in the national territory developed by natural or juridical, public or private, national or foreign persons. Universities and other tertiary educational institutions are ruled by specific laws, such as the University Law (1983). Other important regulatory instruments are: 40 As of June 2007, 1 Tax Unit was equivalent to 3,450 nuevos soles. According to Peru’s Central Bank, the average exchange rate in June 2007 was equal to 3.17 nuevos soles per US$. 41 For further information, please visit: http://www.indecopi.gob.pe/destacado-comsumidor-comisiones-cpc-legis.jsp 42 For further information, please visit: Ministry of Education - MINEDU (www.minedu.gob.pe) 45 Peru – China Free Trade Agreement Joint Feasibility Study • • • • Law of the private educational centers (1995) Creation of the National Council for the Authorization of the Functioning of Universities, CONAFU (1995) Law of Promotion in Education (1996) Law of the National System of Evaluation, Accreditation and Certification of Education Quality, SINEACE (2006)43. By the type of management, educational institutions could be public (either managed directly by educational authorities of public sector or a private non-profit institution) and private. There is no discrimination between nationals and foreigners in private education services, but there are some exemptions to the MFN treatment in the framework of the Andean Community and other Mutual Recognition Agreements. The Ministry of Education is the government body that defines and articulates the politics of education, culture recreation and sports, in conformity with the general politics of the State and supervises and controls non-university institutions. On the other hand, universities are autonomous according with the Constitution and the University Law. They must have an authorization granted by CONAFU to provide education services. CONAFU grants permanent functioning authorizations to the universities with temporary authorization after the minimal period of evaluation of five years or the granted period of extension. F. Environmental Services44 The main legislation relevant to the sector is the Law for the Environment (2005), which defines “environmental services” as the resources, goods and processes that are supplied by natural ecosystems without payment or compensation by their users. The concept of environmental services include such regarding: the protection of the water cycle and resources, the protection of biodiversity, the mitigation of greenhouse gas emissions, the conservation of landscape and the scenic beauty, the control of climate, the maintenance of nutrient cycles and crop pollination, and the provision of spiritual and recreational benefits, among others. The National Environmental Council (CONAM) is the national environmental authority and the rector of the National Environmental Management System. It also coordinates with Ministries, other national-level public institutions and sub-national governments the implementation of environmental policies. CONAM provides the general guidelines and coordinates the activities of all the public-sector environmental units at the three government levels (national, regional and local). National and international companies must be registered in a sector list of authorized providers in order to provide services related to environmental management, such as environmental impact assessment (EIA), pollution reduction plans and closure plans. - Sanitary Services In the case of sanitary services, the legislation that regulates their provision is contained in the General Law of Sanitary Services and the Law to Optimize the Management of the Provider Entities of Sanitary Services (EPS) (2006). Sanitary services provision, such as water and sewage is supervised by the National Superintendence of Sanitary Services (SUNASS). 43 A complete list of laws concerning to education services is available in the following web pages: www.minedu.gob.pe/normatividad/ and www.minedu.gob.pe/dcu/legal.htm 44 For further information, please visit: National Environmental Council (CONAM) (www.conam.gob.pe), National Superintendence of Sanitary Services (SUNASS) (www.sunass.gob.pe), National Environmental Fund (FONAM) (www.fonam.gob.pe) and National Institute of Natural Resources (INRENA): (www.inrena.gob.pe) 46 Peru – China Free Trade Agreement Joint Feasibility Study Provincial city halls grant the license of exploitation to the provider entities of sanitary services (EPSs) which can be public, private or mixed (public-private partnership) and must have their own equity, functional and administrative autonomy. The license is granted for a period from 15 to 60 years. The term license is determined according to the project’s Master Plan and the recovery period of the investment. EPSs (municipal, private or public-private partnership) must sign a contract with a city hall or group of them to operate. In the case of private or public-private partnership EPSs, the contract is signed under the modality of concession. According to the number of connections, EPSs are classified in major size EPS if there are more than 10,000 connections (they must be constituted as anonymous society, according to the General Law of Societies) and minor size EPS, between 1,000 and 10,000 connections (they must be constituted as Commercial Societies of Limited Responsibility, according to the General Law of Societies). In rural towns, sanitary services are provided by communal action through an Organization of Management Boards. They are regulated by SUNASS as well. - Forestry Environmental Services The Forestry and Wildlife Law (2000) defines the concept of forest environmental services as those provided by the forest and forestry plantations that have direct effect on the protection, recovery and improvement of the environment. Forestry environmental services include: soil protection, water cycle regulation, biodiversity conservation, ecosystem, landscape and scenic beauty conservation, carbon sequestration and fixation, climate regulation and maintenance of the essential ecological processes. The Forests and Environmental Services area of FONAM promotes the investment in environmental projects related to the forest, and to achieve the sustainable development through a sustainable management of the environmental services of the forest. FONAM supports projects that preserve, take advantage and improve the environmental services that are offered by the forest, putting emphasis in the conservation of water resources, carbon sequestration, conservation and recovery of biodiversity and the combat against desertification processes. G. Financial Services45 The General Law of the Financial System and the Insurance System and Organic of the Superintendence of Banking, Insurance and Private Pension Funds Administrators regulates the financial services in the country.46. The Superintendence of Banking, Insurance and Private Pension Funds Administrators (SBS) issues rules concerning operational requirements applied to the financial, insurance and private pension systems subject to its supervision. For example, rules about risk identification and management (operational, market, liquidity, credit, others), and regulations related to requirements about people involved in managing financial institutions. Also, SBS grants authorizations based on the study of the information requested to the applicant, the Central Bank’s viewpoint and the fulfillment of the requirements established by Law. Firms in this sector must be constituted as incorporated company, although some exceptions apply depending on the nature of the service provided. The financial regulations and supervisory process follow international standards such as the Basel Principles for Banking Supervision, the International Association of Insurance Supervisors (IAIS), principles for insurance services and the international principles related to stock exchange services. In addition, the accounting rules are in accordance with international standards. 45 For further information, please visit: Central Bank of Peru - BCRP (www.bcrp.gob.pe) Superintendence of Banking, Insurance and Private Pension Funds Administrators -SBS (www.sbs.gob.pe) National Commission of Insurance Companies and Equities - CONASEV (www.conasev.gob.pe) 46 The details of the regulation concerning operational requirements issued by SBS are found in: www.sbs.gob.pe/portalsbs/normatividad/index.asp 47 Peru – China Free Trade Agreement Joint Feasibility Study The establishment of foreign firms is duly regulated under Peruvian rules, and it always requires the authorization of the SBS. Accordingly, any foreign or local individual or entity that seeks to provide financial services must be incorporated as a stock company –except those whose nature does not allow it- and to begin operations in Peru, the interested applicants must follow the procedures issued by the SBS. It is important to mention that there is no discrimination with respect to the 4 modes of supply: cross-border, commercial presence, consumption abroad and temporal movement of persons on banking and insurance companies. The Law includes a provision that takes into account the principle of reciprocity under specific conditions. - Financial System To operate into the Peruvian financial system, financial institutions need to have a minimum regulatory capital-risk weighted asset ratio requirement of 9,1% and a minimum capital entry requirement according to Article 16 of General Law of the Financial System and the Insurance System and Organic of the Superintendence of Banking, Insurance and Private Pension Funds Administrators. - Insurance System The main operational requirement is a minimum capital entry requirement which varies in function of the type of insurance company47. For Insurance and/or reinsurance companies, they shall at all time have a regulatory capital not lower than the solvency equity. The amount of the solvency equity is established based on the highest amount resulting from the application of the following criteria: the solvency margin and the minimum capital. - Private Pension System The Private Pension Fund Administrators (AFP) are subject to the set of laws regarding to investment policies and procedures of the pensions funds. Also they have to fulfill the requirements included in the Law of the Private Pension Funds Administration System. H. Health and Social-related Services48 The General Law of Health and Law of the Modernization of Social Security in Health regulate the provision of health-related and social services in Peru. According to the current legislation, Peru promotes free competition in the provision of healthrelated and social services, although market regulation is necessary for controlling situations of possible abuse of market power and restrictive practices. Health-related and social services are granted under concession or authorization. Health Entities Providers (EPS) are public or private institutions which provide health and social services. They must be constituted in Peru as a Juridical Person according to Peruvian Law, prior authorization of the Superintendence of Health Entities Providers (SEPS). Ministry of Health (MINSA) is in charge of the regime of collective public health services and grants integral attention of health services to the population of scarce resources. This service is financed by public resources and offers attention across the net of state-owned establishments and other selected public or private entities. In order to provide health related and social services, health establishments have to satisfy requirements set by the Ministry of Health related to physical plants, equipment, assistant 47 Firms are classified in the following categories: Companies covering only one line (general risk or life); Companies covering both lines (general risk and life), Insurance and Reinsurance companies, and Reinsurance Companies. 48 For further information, please visit: Superintendence of Health Entities Providers (www.seps.gob.pe), Ministry of Health – MINSA (www.minsa.gob.pe) 48 Peru – China Free Trade Agreement Joint Feasibility Study staff, sanitary systems, risk control systems, among others. Also, professionals working in health establishments must have a professional license. I. Tourism and Travel-related Services49 According to the current legislation, Peru promotes free competition and national treatment between foreign and national service providers. The Law for the Development of Tourism Activities (1998) establishes the legal frame for the development and the regulation of the tourist activity, the basic principles of the tourist activity and the State goals. The public institution that fosters investment in tourism and related services is the Ministry of Foreign Trade and Tourism (MINCETUR), which determines the requirements, obligations and responsibilities that must be fulfilled by the providers of these services. Tourism and travel related services are basically classified into 5 categories: lodging (hotel, apart hotel, hostel, lodge, ecolodge); restaurants; travel agencies; tourist guides and tourism transport. In the case of lodging and travel agencies, authorization must be obtained in the Regional Government where the services are going to be provided. Restaurants have to apply for a license at the respective City Hall. Tourism transport providers must obtain an authorization from the Tourism National Administration through their respective Regional Government. With respect to foreign entry, according to the Law of the Tourist Guide (2005), nationals and foreigners are required to hold a degree recognized by Peruvian law. Also, the Regulation of Travel Agencies, foreign travel agencies need to fulfill the same requirement for domestic travel agencies. In addition, foreign travel agencies have to be associated with domestic travel agencies and this must be notified to the competent regional body. J. Recreational, Cultural and Sporting Services50 Most of recreational, cultural and sport-related services are highly deregulated, except some of them, such as the administration of museums, which requires an authorization from the National Institute of Culture (INC). - Museums According to the Regulation of the Creation, Record and Incorporation of Museums to the National System of Museums of the State, museums can be public or private. It is necessary to obtain an official recognition of the INC through a National Directorial Resolution and to be registered in the National Record of Museums of Peru. National Institute of Culture grants official recognition only if the principal function of the museum is to conserve, investigate, exhibit and promote the cultural legacy, and it enriches the cultural life of the society. - Cultural Performances For providing a non-sporting public cultural performance, it is necessary to obtain a certificate granted by the INC. Beside this, if the non-sportive public cultural show is one of international folklore, it is necessary to present a letter of accreditation of the cultural manifestation from the respective diplomatic representation. Foreign artists must have an artist visa to perform in the country. - Sporting Services The Law of Promotion and Development of the Sport regulates sporting activities. According to it, sport organizations can be commercial societies created according to the General Law of 49 For further information, please visit: Ministry of Foreign Trade and Tourism (www.mincetur.gob.pe) For further information, please visit: National Cultural Institute (INC) (www.inc.gob.pe), National Directorate of Casinos and Slot Machine - MINCETUR (www.mincetur.gob.pe/turismo/DGJCMT) and Peruvian Sport Institute (IPD) (www.ipd.gob.pe) 50 49 Peru – China Free Trade Agreement Joint Feasibility Study Societies or civil associations with non profit purposes. Both of them are ruled by the former Law. The sports that are performed at a competitive level are named Affiliates’ Sports and include Sports Communal Associations, Clubs, Leagues and Federations. They must be legally constituted and registered in the National Record of the Peruvian Sport Institute (IPD). Sport activities which generate revenues or utilities are regulated according to the regulation approved by the IPD on the basis of the national legislation and the international laws. Likewise, IPD grants the concession or Public Tender of the sports infrastructure. K. Transport51 According to the current legislation, the Government promotes free competition in port services. For almost all transport services (air, land and aquatic) there are reservations with respect to national treatment. The Ministry of Transportation and Communications (MTC) is in charge of policies related to the liberalization and regulation of this sector, the Supervisory Agency for the Investment of Transport Infrastructure (OSITRAN) is the regulatory public entity that oversees the fulfillment of the obligations of concession contracts and PROINVERSIÓN is responsible for the project designing and promotion of private investment in transport infrastructure - Maritime Services52 Shipping current policies establish free market competition, openness in navigation routes, freedom for selling or buying ships, flexibility for freight of ships and liberalization of the cabotage for the Andean Community. There is no discrimination in the port services sector. Peruvian Government has granted in Concession two terminals: Matarani Port, located in southern Peru; and Callao Port. (only the south terminal). In 2006 the construction and later operation (green field project) of the New Container Terminal, called “South Terminal” was granted in concession. It implied an investment of US$ 550 million. It is expected to start operations at the end of 2009. Public ports are administrated by the state company ENAPU (National Ports Enterprise). PROINVERSIÓN, in coordination with the National Port Authority (APN), is responsible for the project designing and promotion of private investment in transport infrastructure. Additionally, the General Directorate of Captaincies and Ports (DICAPI) is in charge of the maritime transit, ship authorizations, and safety and environmental issues at the sea, lakes and rivers. International maritime transport can be provided by foreign shipping companies but only a “Domestic shipowner” or “National Ship Enterprise”53 may supply maritime cabotage services (including transport by lakes and rivers). Cabotage is exclusively reserved to Peruvian flagged vessels owned by a Domestic Shipowner or National Ship Enterprise or leased under a financial lease or a bareboat charter, with an obligatory purchase option. Foreign-flagged vessels may be used by a National Shipowner or National Ship Enterprise for a period of no more than six months for water transportation exclusively between Peruvian ports or cabotage when such an entity does not own or lease vessels. 51 For further information, please visit: Ministry of Transportation and Communications - MTC (www.mtc.gob.pe), Supervisory Agency for the Investment of Transport Infrastructure – OSITRAN (www.ositran.gob.pe) and PROINVERSIÓN – Private Investment Promotion Agency (www.ProInversión.gob.pe) 52 For further information, please visit: National Port Authority – APN (www.apn.gob.pe) and Maritime Authority – DICAPI (www.dicapi.gob.pe) 53 A “National shipowner” or “National Ship Enterprise” means a Peruvian national or juridical person organized under Peruvian law, with its principal domicile and real and effective headquarters in Peru, whose business is to provide water transportation services for cabotage or international traffic and which is the owner or lessee under a financial lease or a bareboat charter, with an obligatory purchase option, of at least one Peruvian flag merchant ship and that has obtained the relevant Operation Permit from the General Aquatic Transport Directorate. 50 Peru – China Free Trade Agreement Joint Feasibility Study Besides the requirements described above, at least 51 percent of the subscribed and paid-in capital from National Flag Enterprises must be owned by Peruvian citizens. The chairman of the board of directors, a majority of the directors, and the General Manager of a National Ship Enterprise must be nationals and resident in Peru. The captain of the Peruvian-flagged vessels must be a Peruvian national. In cases where there is no duly qualified Peruvian captain, a foreign national may be authorized to serve as captain. Only a Peruvian national may be a licensed harbor pilot. Other important features in maritime services are: • 21 per cent of the transport of hydrocarbons in national waters or cabotage is reserved for the boats of the Peruvian Navy. • Only a Peruvian citizen may register as a “port worker”. • Peruvian-flag vessels must have at least 80% of Peruvian crew. • Participation of foreign shipping companies will only be granted on the base of reciprocity. - Air Services In order to provide air transport services, it is necessary to have flight permission (national or international) and operational permission submitted by the General Directorate of Civil Aeronautics at MTC. It determines the requirements and procedures according to the category of air service. There are some exceptions for public security or national interest and in the framework of the Andean Community. Participation of foreign air carriers in the transport of cargo or passengers will only be granted on the base of strict reciprocity. With respect to commercial aviation services (including specialty air service), the current legislation reserves services provision to Peruvian natural or juridical persons54. Some exceptions apply. The percentage of capital owned by foreigners may be up to 70% in certain situations: • Foreign capital at the beginning of activities, up to 49 %. • After 6 months of operations, it can be extended up to 70 % Also, only Peruvian nationals may perform aeronautical functions on board of aircrafts belonging to national commercial aviation suppliers, which are suppliers that hold an operating or flight authorization. - Rail Services According to the current legislation, the State promotes free competition in railroad transportation services. The Rail National Regulation establishes the legal framework for the provision of railroad transport services. Rail Tracks have been granted in concession by the Peruvian Government. Concessionaires are not allowed to provide transport services (cargo and passengers), but must guarantee the free entrance or access to transport operators in accordance with the concessions contract. 54 For purposes of this entry, a Peruvian juridical person is an enterprise that fulfils the following requirements: (a) is constituted under Peruvian law, specifies commercial aviation as its corporate purpose, is domiciled in Peru, and has its principal activities and administration located in Peru; (b) at least half plus one of the directors, managers ,and persons who control or manage the enterprise are Peruvian nationals or have permanent domicile or are normally resident in Peru; and (c) at least 51 percent of the capital must be owned by Peruvian nationals and be under the real and effective control of Peruvian shareholders or partners permanently domiciled in Peru. (This limitation shall not apply to the enterprises constituted under law Nº 24882, which may maintain the ownership percentages set in such law). Six months after the date of authorization of the enterprise to provide commercial air transportation services, foreign nationals or foreign citizens may own up to 70 percent of the capital of the enterprise. 51 Peru – China Free Trade Agreement Joint Feasibility Study Three railways for public service in Peru have been granted under concession: Central Railway (447km), Southern and Southeastern Railways (854km and 134km, respectively). Other two railways -Huancayo-Huancavelica Railway (129km) and Tacna-Arica Railway (60km)- are owned by the MTC and the Regional Government of Tacna, respectively. In order to provide transportation services in those railways granted under concession, operators are required to have an operation permit issued by the MTC, and sign an access contract with the Railroad Transportation Infrastructure Concessionary Company. - Road Transportation Services The construction and maintenance of different roads, which accounts for 14% of the National roads, has been granted in concession. The Peruvian policy tends to establish a road tariff of approximately US$ 1.50 for each 100 Km per vehicle or per axis of heavy transport. Road transportation services can be classified into highway and urban transportation services, which should be granted under concession by the MTC, and the relevant city halls. Neither restriction to foreign investment participation nor band prices mechanisms exist in road transportation services. As to national road transportation services, foreign carriers are expected to comply with the same regulations and technical requirements imposed on a national carrier in order to obtain an authorization. However, there are some exemptions to the MFN treatment in the framework of the Andean Community and in the case of signatory’ countries of the Road International Transport Agreement of the Southern Cone (ATIT)55. Also, this agreement indicates that licenses will be granted by a native entity to carriers according to their own legislation, and residing in their own territory. L. Energy56 The Law for Ensuring the Efficient Development of Electric Generation (2006) sets the basis for the efficient generation of power plants as well as the electric supply bidding mechanisms to the distributors. The Cogeneration Regulation (2006) establishes the requirements and conditions for the cogeneration plants to participate in the electric market57. Also, the Organic Law of Geothermal Resources (2006) regulates the procedures to obtain geothermal rights and the Regulation on the Environmental Protection in Electric Activities (1994) institutes a set of provisions for the interrelation of the generation, transmission and distribution of electric activities, with the environment, under the concept of sustainable development. In the case of hydrocarbons, the main legislation is the General Law of Hydrocarbons (1993). Energy generation, transmission and distribution activities can be developed by companies, which must be constituted in accordance with Peruvian laws. Energy generation activities are carried out under free competition rules, while energy transmission and distribution are regulated activities with fixed rates established by the regulatory entity Supervisory Agency of Investments in Energy and Mines (OSINERGMIN). In the case of energy commercialization, Ministry of Energy and Mines (MEM) grants concessions, while OSINERGMIN is in charge of regulatory and quality supervising aspects (rates and access pricing) and INDECOPI is in charge of the preservation of competition and fair market practices. To commercialize Natural Gas for Vehicles (GNV), an authorization from the MEM is required. To build and operate hydroelectric plants, concessions need to be granted. Nevertheless, for thermoelectric plants, only an operation authorization is required. The same company cannot 55 Signatory Countries of the “ATIT”: Argentina, Bolivia, Brazil, Chile, Paraguay, Peru and Uruguay. For further information, please visit: Ministry of Energy and Mines – MEM (www.minem.gob.pe), Supervisory Agency of Investments in Energy and Mines – OSINERGMIN (www.osinerg.gob.pe), PERUPETRO (www.perupetro.com.pe) and PROINVERSIÓN (www.ProInversión.gob.pe) 57 Cogeneration is a process that improves the energetic efficiency and reduces the consumption of fuels by means of the combined production of electricity and useful heat. 56 52 Peru – China Free Trade Agreement Joint Feasibility Study handle electric power plants, main transmission systems and distribution activities simultaneously, but may own secondary transmission systems. To develop oil and gas exploration and exploitation activities, in a specific area, it is necessary to sign a contract with the government, which includes benefits established by Law. PERUPETRO, as a state representative, is in charge of negotiating, signing and supervising hydrocarbon contracts and Technical Evaluation Agreements. To develop oil and gas transmission by pipeline activities, it is mandatory to get a concession granted by the Ministry of Energy and Mines (MEM). This activity is regulated and OSINERGMIN fixes the maximum rates. In order to promote the construction of natural gas transmission pipelines, companies can access a guarantee under the Law of Promotion Development of the Natural Gas Industry (1999). In the case of transportation, storage, processing, refining, distribution and commercialization of hydrocarbons, an authorization from the MEM is required. To develop gas distribution activities it is necessary to obtain a concession granted by the MEM. This activity is regulated and rates are fixed by OSINERGMIN. Basic requirements for concessions are the following: • • • • • • General information of the company Pre-project description Description of needed / required studies Feasibility study Authorization for the exploitation of natural resources (if applicable) Valid guarantee. Concessions can be granted on a permanent basis. In those cases, additional documentation is required: 1) an environmental impact study and 2) a certification of the non-existence of archaeological remains, granted by the National Institute of Culture (INC). According to the General Law of Hydrocarbons, foreign companies, in order to sign exploration contracts, have to establish a branch or to constitute a society with an address in Lima, according to the General Law of Societies, and name a Chief Executive of Peruvian nationality. Foreign companies have to be registered in the Public Registries and name a legal representative of Peruvian nationality, with a legal address in Lima, Peru. 2.3.4 Peru’s International Commitments related to Services Under the GATS, Peru maintains horizontal commitments on mode 3 (commercial presence) and mode 4 (movement of natural persons). In relation to the latter, Peru allows the temporary entry of foreign providers for a period not longer than 3 years, consecutively renewable. These providers can’t constitute more than 20% of the total of employees in an enterprise and their revenues can’t exceed 30% of the enterprises’ payroll. Nevertheless, the Legislative Decree Nº 689 establishes a wide range of exceptions to these limitations. According to it, limitations do not apply to foreigner providers with Peruvian spouses, ascendants, descendents or siblings; migrants and foreigners from countries with which Peru has signed Double Nationality Agreements or Labor Reciprocity Agreements, among others. Additionally, employers can ask for an exemption of these numerical limitations in the following cases: specialized professional or technical personnel, executive personnel (managers and board members) under certain circumstances, basic, secondary or superior education professors of foreign private schools or professors of foreign languages, and any other case settled down by Supreme Decree. 53 Peru – China Free Trade Agreement Joint Feasibility Study Regarding the sector classification, Peru adopted commitments in 7 of the 12 sectors of GATS58: Business Services, Communication Services, Financial Services, Distribution Services, Tourism and Travel Related Services, Recreational, Cultural and Sporting Services and Transportation Services. Peru also participated in the negotiations on Telecommunications and Financial services after the Uruguay Round and its commitments in these sectors can be found in the Protocols 4th and 5th of GATS. In addition, on the Doha Round Negotiations, Peru presented an initial offer in 2003 and a revised offer in 2005, which was considered as one of the most ambitious of the process59. A useful tool to analyze Peru’s commitments in GATS is to calculate the sector coverage ratio. This ratio shows the percentage of the sector listed by a country, taking into account if commitments were made in any of the 155 sub-sectors inside 12 major categories of service sectors and covered by GATS. In this sense, the sector coverage ratio is the number of committed sub-sectors divided by the total number of sub-sectors of each sector60. Peru’s Sector Coverage Index under GATS Sector Peru (%) All Sectors 25.16 Business Services 15.22 Communication Services 33.33 Construction and Related Engineering Services 0.00 Distribution Services 40.00 Education Services 0.00 Environmental services 0.00 Financial Services 94.12 Health Services 0.00 Tourism and Travel Related Services 50.00 Recreational, Cultural and Sporting Services 40.00 Transport Services 5.71 Other Services 0.00 Note: Calculated according to WTO Draft Consolidated Schedule of Specific Commitments of Peru. In this sense, the results of the index show that Peru has variable sector coverage in GATS. While sectors as Construction, Education, Environmental, Health, Transport and Other are not covered (or show a low percentage, as in the case of Transport Services), other sectors (Business, Communication, Distribution and Tourism and Travel Related Services) show a higher coverage level in GATS. Additionally, Financial Services present the highest level of sector coverage for Peru, with a result close to 100%. Considering that this coverage ratio is not sufficient by itself to describe the levels of liberalization committed in GATS, Peru’s commitments are also presented following the methodology developed by Bernard Hoekman in “Tentative First Steps: An Assessment of the Uruguay Round Agreement on Services” (1995). In that paper, Hoekman quantifies the specific commitments of different countries in the GATS, in order to compare the different levels of liberalization of services sectors and its evolution through time. Each specific commitment of the Draft Consolidated Schedule of Specific Commitments of Peru is separately measured, considering if the restriction applies to Market Access (MA) 58 59 60 The sector analysis is based on the WTO document GNS/W/120, Services Sectors Classification List. Visit http://www.wto.org/english/tratop_e/serv_e/s_negs_e.htm. for further information. Each subsector or further subdivisions are taken into account, when possible. 54 Peru – China Free Trade Agreement Joint Feasibility Study and/or National Treatment (NT) in any subsector or in any of the 4 modes of supply. As a matter of simplification, results will be displayed only to show commitments in each mode of supply, considering MA and NT provisions for each subsector as one. Commitments can be classified into 3 categories: (1) None (no restrictions for the sector), (2) Some restrictions apply or (3) Unbound (there are no liberalization commitments for the sector). To estimate the scope of sector commitments, numbers “1”, “0.5” or “0” are assigned, respectively to each case. Peru’s Openness Index Based on GATS Commitments Methodology A Methodology B Sector Mode1 Mode2 Mode3 Mode4 Mode1 Mode2 Mode3 Mode4 Business Services 0.02 0.02 0.14 0.02 0.14 0.14 0.93 0.14 Communication Services 0.25 0.32 0.26 0.08 0.75 0.97 0.78 0.25 Construction and Related Engineering Services - - - - - - - - Distribution Services - - 0.40 - - - 1.00 - Education Services - - - - - - - - Environmental Services - - - - - - - - Financial Services 0.03 0.06 0.93 - 0.03 0.06 0.98 - Health Services - - - - - - - - 0.13 0.13 0.44 - 0.25 0.25 0.88 - - - 0.35 0.05 - - 0.88 0.13 Tourism and Travel Related Services Recreational, Cultural and Sporting Services Transport Services 0.03 - 0.06 - 0.50 - 1.00 - Other Services - - - - - - - - All Sectors 0.06 0.07 0.23 0.02 0.23 0.26 0.92 0.08 Note: Modes of Supply include (1) Cross Border Supply, (2) Consumption Abroad, (3) Commercial Presence and (4) Movement of Natural Persons. This table shows results for Peru’s commitments in each mode of supply. These results were calculated as the total level of liberalization in each sector using the score from Hoekman’s methodology of “0”, “0.5” or “1” (considering the sum of both MA and NT provisions) divided by: • • For Methodology A: The total quantity of possible commitments for MA and NT in each mode of supply) For Methodology B: The total quantity of commitments made by Peru for MA and NT in each mode of supply) The reason for the double calculation of results is even thought Methodology A gives an idea about the general level of liberalization in each sector; they may appear as underestimating Peru’s liberalization commitments because they use a base the total of subsectors included in each sector, instead of just the ones where commitments have been made. In the Business Sector, Peru made commitments for Professional Services (Accounting, auditing and bookkeeping services, Architectural services, Engineering services and Other), Rental/Leasing Services without Operators (Relating to other transport equipment) and Other Business Services (Advertising services and Convention services). Regarding Professional Services, Peru fully liberalized Mode 3 for MA in the subsectors listed and also Modes I and 2 in the subsector Other. Similarly, for NT, Peru fully liberalized Mode 3 for Accounting and Other sectors and partially liberalized Architecture and Engineering services subsectors. Additionally, for Rental/Leasing Services and Other Business Services, Peru made commitments of total liberalization in MA and NT for Mode 3 and Modes 3 and 4, respectively. 55 Peru – China Free Trade Agreement Joint Feasibility Study The sector, as a whole presented a level of liberalization of 0.02 for Modes 1, 2 and 4 and a higher level for Mode 3. If Methodology B is taken into account, results show almost full liberalization for Mode 3 and relatively low levels for Modes 1, 2, and 4. Regarding Communication Services, Peru made commitments in several subsectors of Telecommunication services. In each of the sectors listed, for MA, Peru made partial commitments for liberalization in Modes 1, 2 and 4 and full liberalization in Mode 3. Regarding NT, Peru fully liberalized Modes 1, 2 and 3. As a whole, Peru reached an average liberalization level of 0.28 for Modes 1, 2 and 3 an a much mower result for Mode 4. (Methodology A). On the other hand, Methodology B presents very high and almost full liberalization commitments for Mode 1 and 3 and Mode 2, respectively. In the case of Distribution Services, commitments were made in 2 of 5 subsectors (Wholesale trade services and Retailing Services) and presented total liberalization (listed as “none”) for Mode 3 in both cases (showed by result in Methodology B). Even thought, when considering the sector as a whole, Hoekman’s index gives a result of 0.4 of liberalization for Mode 3 and 0% for the other modes of supply. As for Financial Services, the Methodology A shows very low results for Mode 1 and 2 and results over 0.9 of liberalization for Mode 3. These results don’t change in a dramatic way when considering Methodology B. Regarding Tourism and Travel Related Services, Peru made commitments for Hotels and Restaurants (including catering) and Travel agencies and tour operators subsectors. For Methodology A, Peru reached a liberalization level of 0.13 for Modes 1 and 2, and 0.44 for Mode 3. In the other hand, Methodology B almost doubles the result for each Mode. In the Recreational, Cultural and Sporting Services, Peru listed liberalization commitments for Entertainment and Sporting and Other Recreational Services. Regarding the first one, Peru applies one restriction for both Mode 3 and 4 in MA and full liberalization for Mode 3 in NT. In respect to the latter subsector, Peru committed for full liberalization in Mode 3 for MA and NT. Considering the sector as a whole, Peru reaches a level of liberalization of 0.35 and 0.05 for Modes 3 and 4, respectively (Methodology A). With Methodology B, both results are higher, especially for Mode 3. Finally, Peru made commitments for Passenger transportation in Maritime and Internal Waterways Transport. In both cases, Peru fully liberalized Mode 1 and 3 for MA and Mode 3 for NT. Taking the Transportation sector as a whole, these commitments translate into a total of 0.3 and 0.6 for each of de modes aforementioned, respectively (Methodology A). With Methodology B, Peru’s liberalization level is much higher and reaches 1 for Mode 3 and 0.5 for Mode 1. 2.4 Foreign Investment Regimes China A. Treatment of Foreign Investment Since late 1970s, China has carried out a series of reforms on investment. The government encourages foreign investment into the Chinese market, and has uninterruptedly expanded the scope of investment. Effective and better utilization of Foreign Direct Investment (FDI) is the basic long-term principle for the Chinese government to adhere to. The Catalogue for the Guidance of Foreign Investment Industries has been revised three times since 1997. The 2nd revision of the Provisional Regulation on Foreign Investment Guidance was completed in 2002 and took effect on April 1, 2002, and the 3rd Catalogue for the Guidance of Foreign Investment Industries was completed in 2004, and took effect on December.13, 2004. In recent years, China has further removed the restrictions on the proportion of foreign equity in investment projects, and opened more sectors to foreign 56 Peru – China Free Trade Agreement Joint Feasibility Study investment, including telecommunications, urban water supply and drainage, construction and operation of gas and heat distribution network. China has also further opened such service sectors as banking, insurance, distribution, trading right, tourism, telecommunications, transportation, accounting, auditing and legal services. The production and publishing of broadcasting and TV program, and film production is also opened to foreign investors. The timeframe and pace of opening of these markets has been contained in annexes to the Catalogue for the Guidance of Foreign Investment Industries. Foreign investment belonging to the encouraged category will be given preferential policies including exemption from importing equipment tariff and Value Added Tax (VAT) of importing. The basic laws in China concerning foreign investment are: the Law of the People’s Republic of China on Chinese-Foreign Equity Joint Venture; the Law of the People’s Republic of China on Chinese-Foreign Contractual Joint Venture; and the Law of the People’s Republic of China on Wholly Foreign Owned Enterprises. These three basic laws on FDI have stipulated that the State will not nationalize or expropriate any foreign invested enterprises. Only under special circumstances, for the requirement of social and public interests, foreign invested enterprises may be expropriated in accordance with legal procedures, and appropriate compensation shall be provided. Upon approval by the National People’s Congress and its Standing Committee, China has revised the following laws and regulations at the time given: in October 2000, the Law of the People’s Republic of China on Chinese-Foreign Contractual Joint Venture; in October 2000, the Law of the People’s Republic of China on Wholly Foreign Owned Enterprises; in March 2001, the Law of the People’s Republic of China on Chinese-Foreign Equity Joint Venture; and in July 2001, the Implementation Rules on Law of the People’s Republic of China on Chinese-Foreign Equity Joint Venture, including the elimination and cessation of enforcement of requirements on trade and foreign local content, export performance, compulsory technology transfer, and so on. Chinese authorities would not enforce the terms of contracts containing such requirements. The term of foreign exchange balancing61, permission or rights for importation and investment would not be conditional upon performance requirements set by national or sub-national authorities, or subject to secondary conditions covering, for example, the conduct of research, the provision of offsets or other forms of industrial compensation including specified types or volumes of business opportunities, the use of local inputs or the transfer of technology. Permission to invest, import licenses, quotas and tariff rate quotas would be granted without regard to the existence of competing Chinese domestic suppliers. In China, foreign invested enterprises mainly include wholly foreign-owned enterprises, equity joint venture and contractual joint venture. China keeps on searching new forms of FDI. The regulations on setting up venture capital companies, foreign invested share companies and foreign invested holding companies have been either promulgated or complemented. The function for Foreign Invested Holding Companies has been further expanded. China has issued the regulation on M&A which allows foreign investors to use the way of M&A to set up foreign invested companies in China. Foreign investors are encouraged to take part in the restructuring and reform of State-owned Enterprises. The government allows foreign investors to play a role in the restructuring and disposal of the assets owned by the Asset Management Corporations. A new regulation on venture capital that took effect March 1, 2003, which replaced the previous provisional regulations permitting the establishment of foreign-invested venture capital firms, including wholly foreign-owned enterprises, and which aimed at funding hightechnology and new technology startups in industries open to foreign investment. The new regulation lowers capital requirements, allows these firms to manage funds directly invested from overseas, and offers the option of establishing venture capital firms under an organizational form similar to the limited partnerships used in other countries. 61 One of the common measures using by the developing countries for current account control, etc. the requirement for the enterprises seeking for their foreign currency balance by themselves partially or completely. 57 Peru – China Free Trade Agreement Joint Feasibility Study On February 15, 2007, the Ministry of Finance and the State Administration of Taxation issued the Document of Tax Policy Regarding Promoting the Development of Venture Capital. If an enterprise of venture capital invests the small and medium high-tech enterprises unlisted by the means of stocks more than 2 years (including 2 years), 70% of its investment for such enterprises would be countervailed the enterprises income tax. China has expanded the business scope and operations of holding companies. A new regulation that took effect in April 2003 made it possible for holding companies to manage human resources across their affiliated companies, and provide certain market research and other services to their affiliates. China has also made efforts to expand the foreign invested enterprises to be listed in the stock market by ways of IPO, or directly purchase the shares of enterprises in the stock market. Examination and approval procedure are required by the Government for setting up foreign invested enterprises. Efforts have been made to further streamline the examination and approval procedures based on the expansion of the approval authorization from central government to provincial governments for all FDI projects in the encouraged category of the Catalogue for the Guidance of Foreign Investment Industries with no limit on its investment scale, and these projects are not subject to national planning. Many provinces can provide one-stop shop services, and each province has set up the investment promotion center to help investors. For foreign investment, China abides by the Most Favored Nation (MFN) and the National Treatment requirements. Efforts have been made to keep continuity and stability of FDI policies. Currently Foreign invested enterprises still enjoy preferential treatments in terms of taxation and so on, comparing with domestic enterprises. The Dispute Settlement Centers for Foreign Investors/foreign invested enterprises have been established at both central and provincial level to help investors solving problems. In order to ensure the transparency related to foreign investment, China promulgates the changes of laws and regulations guiding FDI in time; Compiles and publishes investment regulations on an annual basis; seeks opinions/comments from the Foreign Invested Enterprises before the adjustment of some FDI policies; allows a reasonable transitional period for foreign invested enterprises to make adjustments㸪 or to make a comment on the draft of laws and regulations in some cases; allows businesses and other interested parties to get information on FDI in the government website (www.mofcom.gov.cn). The government website designed especially for FDI (www.fdi.gov.cn) has been set up. B. Special Investment Regimes and/or Zones China had established a number of special economic areas where more open policies were applied, including 5 Special Economic Zones (SEZs), 14 open coastal cities, 6 open cities along the Yangtze River, 21 provincial capital cities and 13 inland boundary cities. Those special economic areas enjoyed greater flexibility in utilizing foreign capital, introducing foreign technology and conducting economic cooperation overseas. From January.1, 2008 the new setting-up foreign enterprises in the special economic zones will pay income tax by the rate 25%, same with the Chinese enterprises. Continuous efforts have been made to encourage foreign investors to invest in new and hightech industry, fundamental and related industries, conduct technological renovations, and set up R&D centers in China. Many implementing regulations have been promulgated. Preparation work for the revision of the Advantageous Industrial Catalogue in Central and Western China has also been started in order to encourage foreign investors to invest in central and western China. From January.1, 2008, all high-tech enterprises whatever in or not in the special economic zones will be given the preferential enterprises income tax rate, 15%. 58 Peru – China Free Trade Agreement Joint Feasibility Study Peru62 A. General Framework Peru has established a stable legal framework to attract domestic and foreign direct investment. The current Constitution, approved in 1993, includes a series of provisions that guarantees a favorable juridical framework to promote the development of private investment. Among these principles, the Constitution ensures: • • • • • • • • free private initiative exercised in a market-based social economy free competition and prohibition of restrictive practices and the abuse of dominant or monopolistic positions freedom to hire workers special powers to the State to sign contract laws that establish guarantees national treatment the possibility to submit investor-State controversies to national or international arbitration freedom to hold and dispose foreign currency inviolability of property and establishment of conditions for exceptional causes that empower expropriation, specifically, in-advance cash payment of a fair-value; equal treatment on taxation matters; and the express acknowledgement that no tax may have confiscating effects. Peru’s legal investment framework is based on the national treatment principle, under which foreign investors are allowed without restrictions and previous authorization in most of the economic activities. Acquisition of shares from domestic shareholders is allowed through the stock exchange or any other mechanism. In terms of ownership, foreign individuals or corporate bodies cannot own mines, lands, forest lands, waters, fuels and energy sources, within 50 kilometers from the borders, except in the case of public necessity, previously approved by the Ministry Council. No selection mechanisms or performance requirements are applied or demanded to foreign investors. All legal provisions establishing production methods or production indexes have been repealed. No prohibition or requirement to use certain inputs or technological processes, and in general, no intervention in production processes of companies over the type of economic activity, installed capacity, or any other similar economic factor is allowed. Exceptions are made for legal provisions over hygiene and industrial security, environment and health. PROINVERSIÓN, Peru’s private investment promotion agency is the institution in charge of promoting domestic and foreign investment in the country. As part of its duties, PROINVERSIÓN is in charge of designing, proposing and conducting the Peru’s investment policy. Also, it promotes, through concessions, the participation of private investment in infrastructure public works and utilities. B. Legal Stability Agreements In cases where foreign investments enjoy benefits derived from the subscription of legal stability agreements with the State, the latter guarantees the legal stability to the former through the signing of agreements with law-contract status, which are subject to the general provisions on contracts established in Peru’s Civil Code. More specifically, the State guarantees foreign investors: a) national treatment; b) stability of the Income Tax System, applicable to the investor, in force when the agreement is concluded; c) free availability of foreign currency and remittance of profits, dividends and royalties. Also, the State grants stability to the enterprise receiving the investment on: a) labor engagement 62 For additional information, see PROINVERSIÓN website at http://www.ProInversión.gob.pe 59 Peru – China Free Trade Agreement Joint Feasibility Study system in force when the agreement is concluded; b) export promotion system in force when the agreement is concluded; and c) Income Tax System. Any investor or enterprise receiving the investment can sign these legal stability agreements. However, to sign this kind of agreement, investors from privatization or concession processes and the enterprises involved need to fulfill the following commitments: a) to make in a twoyear term capital contributions for an amount not below US$ 5 million in any economic activity (except mining and hydrocarbon sectors, where the amounts must be not below US$ 10 million); b) to acquire more than 50% of shares of an enterprise participating in the privatization process; c) to make capital contributions to the enterprise included in the concession contract, fulfilling the investment requirements established in this contract. In the case of the enterprises receiving the investments flows, it is required that: a) one of its shareholders signs the corresponding Legal Stability Agreement; b) in case tax stability is requested, contributions shall account for a 50% increase in relation to the total amount of capital and reserves and shall be destined to expand production capacity or contribute to the company’s technological development; c) the privatized enterprise transfers more than 50% of its shares; and d) the enterprise benefits from the concession contract. Legal stability agreements are valid for 10 years. In the case of concessions, its term shall be extended to the term set in the concession contract. Under these agreements, any dispute is derived to arbitration tribunals. After the legal stability agreement expires, this cannot be renewed. To sign a new agreement, the investor needs to commit to new investment contributions. In this case, this guarantees the stability of the regulations in force by the date the new agreement is signed. C. Other incentives to investors Peru’s investment laws also provide some specific incentives to investors: - - - - Anticipated Recovery Regime: Individuals or corporate bodies engaged in the production of goods or services for export can get a refund of the Value-Added Tax paid on imports or domestic acquisitions of capital goods63. Incentives to agriculture: Individuals or corporate bodies involved in agriculture or the agribusiness sector are favored with lower Income Tax rates, accelerated depreciation, tax refunds and access to hire workers under more favorable labor and social security systems64. Incentives to aquaculture: Individuals or corporate bodies involved in agriculture or the agribusiness sector are favored with lower Income Tax rates and access to hire workers under more favorable labor and social security systems. Amazon Region Law: Special tax conditions have been created to favor private investment in this Region if engaged in the following activities: agro-farming, aquaculture, fishing, tourism, forestry extraction and manufacturing activities related to the processing, transformation and commercialization of primary goods from the aforementioned activities. D. Special Zones a) Centers of Exportation, Transformation, Industry, Commercialization and Services – CETICOS CETICOS are special customs zones, whose purpose is to create development centers through industrial, maquila, assembling or storage activities. CETICOS are located in the port 63 Legislative Decree No.973 specifies the conditions for the interested parties to benefit from this regime. This regime also benefits investors that have not started their commercial activities and companies which signed contracts with the State to execute projects related to the development, exploration or exploitation of natural resources and the development of infrastructure works and public utilities. 64 Agribusiness related to wheat, tobacco, oleaginous seeds, oil and beer are excluded. Activities within the Province of Lima and the Constitutional Province of Callao are excluded as well. 60 Peru – China Free Trade Agreement Joint Feasibility Study cities of Paita, Ilo and Matarani. Companies settled at CETICOS are tax exempted until December 31st, 2012. Agro-exporting activities can be developed at CETICOS. Primary transformation of agrofarming activities is allowed within the CETICOS. b) Tacna Duty Free Zone (ZOFRATACNA) Industrial, agribusiness, assembly and service activities can be carried out in the Tacna Duty Free Zone. These activities include the storage, distribution, disassembly, packaging, marking, labeling, division, exhibition and classification of merchandise, among others. In addition, the repairing, reconditioning and maintenance of machinery and equipment used in mining is allowed in the Tacna Duty Free Zone. Companies settled in ZOFRATACNA in relation to the aforementioned activities are tax exempted. c) Puno Special Economic Zone (ZEEDEPUNO) Currently, the Peruvian Government is implementing a Special Economic Zone in the Department of Puno. The activities to be carried out in ZEEDEPUNO are going to be similar to the ones allowed in ZOFRATACNA65. In the same way, the companies to be settled in ZEEDEPUNO to participate in these activities will be tax exempted as well. E. Bilateral Investment Treaties (BIT) Aiming to consolidate a stable and predictable investment climate, Peru is having an active participation in the negotiation of investment treaties with several countries. All the bilateral trade negotiations include a chapter on investment, whose objective is to promote and protect investments. If Peru already has in force a Bilateral Investment Treaty with the other country involved in the negotiations, a chapter on investment to deepen the existing BIT is negotiated. Peru’s recent BIT and investment chapters are based on a negative list approach, with national treatment principle applying from the establishment phase of the investment. At present, Peru has 29 BIT in force with the following countries: Argentina, Australia, Bolivia, Canada, Colombia, Chile, China, Cuba, Czech Republic, Denmark, Ecuador, El Salvador, Finland, France, Germany, Italy, Korea, Malaysia, Norway, Netherlands, Paraguay, Portugal, Romania, Singapore, Spain, Sweden, Switzerland, Thailand, United Kingdom and Venezuela. Also, Peru has already ratified its Free Trade Agreement with United States, which includes an investment chapter, and approved a BIT with Belgium. 2.5 Trade Remedies China A. Safeguards Pursuant to the provisions of the Foreign Trade Law of the People’s Republic of China and China’s WTO commitments, the Regulations of the People’s Republic of China on Safeguards was formulated, which became effective on January 1, 2002, and were revised on March 31, 2004, according to the Decision of the State Council on Revising the Regulations on Safeguards of the People’s Republic of China. 65 However, the Ministry of Economic and Finance together with the Ministry of Production have the faculty to ban certain activities by means of a Supreme Decree. 61 Peru – China Free Trade Agreement Joint Feasibility Study China has also formulated two administrative rules regarding safeguards, the Provisional Rules on Initiation of Safeguards Investigation and the Provisional Rules on Hearing in Safeguards Investigation, promulgated by the Ministry of Foreign Trade and Economic Cooperation (MOFTEC) in Decree No. 9 and No. 11 respectively on February 10, 2002. These two rules came into effect on March 13, 2002. In addition, The Rules on Investigations and Determinations of Industry Injury for Safeguards were issued on November 12, 2003 and took effect 30 days later. Up to this date, only one investigation into safeguard measures has been initiated and duly notified to the WTO Safeguards Committee. The investigation was related to Partial Iron & Steel Products (provisional and final measures were adopted). B. Anti-dumping Measures and Countervailing Duties The State Council issued the new Regulations of the People’s Republic of China on AntiDumping, which became effective on January 1, 2002. In early 2002, the MOFTEC, which at that time was responsible for making determinations of dumping under the new regulations, issued several sets of rules covering initiation of investigations, questionnaires, sampling, verifications, information disclosure, access to non-confidential information, price undertakings, hearings, interim reviews, refunds and new shipper reviews. The State Economic and Trade Commission (SETC), which at that time was responsible for making determinations of injury, issued rules covering industry injury investigations and public hearings in January 2003. According to the Decision of the State Council on Revising the Regulations on Anti-dumping of the People’s Republic of China, the Regulations of the People’s Republic of China on Anti-Dumping were revised on March 31, 2004. The Rules on Investigations of Industry Injury for anti-dumping were issued on November 12, 2003 and took effect 30 days later. Meanwhile, this new rules replaced the rules that SETC issued in early 2003. In August 2002, the Supreme People’s Court issued Rules Regarding Supreme People’s Court Hearings on Judicial Review of International Trade Disputes, which provide guidance concerning judicial review of administrative agency decisions affecting international trade, including those in the Anti-dumping area. In September 2002, the Supreme People’s Court issued Provisions of the Supreme People’s Court on Certain Issues Concerning the Applicability of Laws in the Hearing and Handling of Antidumping Administrative Cases. According to the above laws and regulations, countervailing and anti-dumping duties may be applied to goods whose importation into the country injures or threatens to injure the relevant national industry on account of reduced prices owing to artificial conditions, such as subsidies or dumping, in the export markets concerned. By the end of June of 2006, China had initiated 45 anti-dumping investigations and 1 safeguarding on products from over 20 countries and regions, covering 45 kinds of products including chemicals (30), light industry (2), textile (3), steel (3), electronic (1), paper products (5), pharmacy (1) and so on. With regard to these measures, some exporters were granted 0% duty free; some exporters were given price undertakings treatment; and certain members were excluded from the investigation on the basis of negligible import volume. Up to now, Chinese investigation authorities have not initiated any investigation on countervailing measure. C. Institutional Arrangements In March 2003, a general reorganization of the State Council ministries and commissions consolidated the safeguard functions of the MOFTEC and SETC into the newly formed MOFCOM. Presently, the Ministry of Commerce (MOFCOM) and the Tariff Commission of the State Council (TCSC) are the competent authorities of safeguard matters. 62 Peru – China Free Trade Agreement Joint Feasibility Study According to the Regulations on Safeguards, the MOFCOM is in charge of the investigation and determination of increase of imports, and also responsible for investigation and determination of injury. If a definitive safeguard measure takes the form of quantitative restriction, a decision shall be made and published by the MOFCOM as the foreign trade administrative authority. TCSC is to decide whether to increase tariff level as provisional or final safeguard measure, upon proposal made by MOFCOM on the basis of investigation findings. The reason that MOFCOM and TCSC decide upon different forms of safeguard measures is to ensure the uniformity in administration of trade laws and regulations, as required by Article 10 of GATT 1994. While the MOFCOM is the government agency to formulate and enforce administrative measures concerning trade, TCSC is in charge of matters relating to formulation of custom tariffs. Table 2.7 Trade Remedy Regime Regulation Regulations on Antidumping Provisional Rules on Initiation of Antidumping Investigations Date Effective 1 Jan 2002 and revised on March 31, 2004 Effective 13 Mar 2002 Provisional Rules on Questionnaire in Antidumping Investigation Effective 15 Apr 2002 Provisional Rules on Public Hearing in Antidumping Investigations Effective 13 Mar 2002 Provisional Rules on Sampling in Antidumping Investigations Effective 15 Apr 2002 Provisional Rules on Disclosure of Information on Antidumping Investigations Provisional Rules on On-the-Spot Verification in Antidumping Effective 15 Apr 2002 Investigations Provisional Rules on Access to Non-Confidential Information in Antidumping Investigations Effective 15 Apr 2002 Effective 15 Apr 2002 Provisional Rules on Price Undertakings in Antidumping Investigations Effective 15 Apr 2002 Provisional Rules on New Shipper Review in Antidumping Investigations Effective 15 Apr 2002 Provisional Rules on Refund of Antidumping Duty Effective 15 Apr 2002 Provisional Rules on Interim Review of Dumping and Dumping Margin Effective 15 Apr 2002 Rules on Investigations of Industry Injury for Antidumping Regulations on Anti-subsidy Effective 12 Dec 2003 Effective 1 Jan 2002 and revised on March 31, 2004 Provisional Rules for Initiation of Countervailing Investigation Effective 13 Mar 2002 Provisional Rules for Questionnaire in Countervailing Investigation Effective 15 Apr 2002 Provisional Rules for On-the-spot Verification of Countervailing Investigation Effective 15 Apr 2002 Provisional Rules for Conduct of Public Hearing in Countervailing Duty Investigation Effective 13 Mar 2002 Rules on Investigations of Industry Injury for Countervailing Measures Regulations on Safeguard Effective 12 Dec 2003 Effective 1 Jan 2002 and revised on March 31, 2004 Provisional Rules on Initiation of Safeguard Investigations Effective 13 Mar 2002 Provisional Rules on Hearing in Safeguard Investigations Effective 13 Mar 2002 Rules on Investigations of Industry Injury for Safeguard Effective 12 Dec 2003 Provisions of the Supreme People's Court on Certain Issues Concerning the Applicability of Law in the Hearing and Handling of Antidumping Administrative Cases Effective 1 Jan 2003 Provisions of the Supreme People's Court on Certain Issues Concerning the Applicability of Law in the Hearing and Handling of Anti-subsidy Administrative Cases Effective 1 Jan 2003 Source: edited according to Foreign Economic and Trade Gazette of the Ministry of Commerce of the People’s Republic of China The Bureau of Fair Trade for Imports and Exports (BOFT) of the MOFCOM is in charge of investigation and determination of dumping and subsidy; The Bureau of Industry Injury Investigation (BIII) of the MOFCOM is responsible for investigation and determination of Jury. If a provisional countervailing measure takes the form of undertakings, a decision shall be made and published by MOFCOM as the foreign trade administrative authority. TCSC decides whether to levy provisional or definitive anti-dumping duty and countervailing duty, including the level of duty, upon proposal made by the MOFCOM on the basis of the 63 Peru – China Free Trade Agreement Joint Feasibility Study investigation findings. However, the level of the duty decide by the TCSC cannot exceed the dumping margin determined by the MOFCOM; no countervailing duties shall be levied in excess to the amount of subsidy as determined in the final determination made by the MOFCOM. The MOFCOM deals with the other issues related to anti-dumping and countervailing measures, including consultation, notifications, dispute settlement concerning anti-dumping and countervailing measures and so on, other than the above functions carried out by the Tariff Commission. Peru A. Safeguards On January 1st, 1995, the WTO Agreement on Safeguards was incorporated into Peru’s domestic laws. The application of safeguards is based on the Supreme Decree No. 020-98ITINCI, which was later modified by the Supreme Decree No. 017-2004-MINCETUR. Also, in 2003, Peru issued the Supreme Decree No. 023-2003-MINCETUR, which set a series of regulations on transitional safeguards under the rules and commitments accepted by the Members of the WTO. The investigations on safeguards are conducted by INDECOPI’s Inspecting Committee on Dumping and Subsidies (CFDS). Nonetheless, the application of safeguard measures is responsibility of a Multisectoral Committee comprised by the Minister of Economics and Finance, Minister of Foreign Trade and Tourism and the Minister of the sector where the affected domestic industry belongs. Peru has applied safeguard measures only two times66. In December 2003, provisional safeguards to the importation of textiles and apparel originating from China were imposed. This measure was based on the possibility to use this mechanism under the Article 16 of the Protocol on the Accession of the People’s Republic of China to the WTO. This measure was in effect for 200 days and no final safeguards were imposed afterwards. In August 2004, Peru started an investigation to evaluate the possibility to impose a general safeguard to the importation of textiles and apparel. In October 2004, a provisional safeguard for 200 days was imposed, based on the Article 6 of the WTO Agreement on Safeguards. However, in May 2005, Peru decided not to apply final safeguards to the importation of the aforementioned goods. B. Anti-dumping and countervailing duties On January 1st, 1995, the Agreement on Implementation of Article VI of the General Agreement on Tariffs and Trade 1994 and the WTO Agreement on Subsidies and Countervailing Measures were incorporated into Peru’s domestic laws. The application of anti-dumping and countervailing measures is based on the Supreme Decree No. 006-2003-PCM that regulates the rules established in the aforementioned WTO Agreements67. Under this regulation, investigations on dumping and subsidies are conducted at lower discretional levels compared with former regulations on the matter (Supreme Decrees No. 043-97-EF, No. 144-2000-EF and No. 225-2001-EF) in order to bring more transparency and predictability to the process. 66 Also, within the Andean Community framework, Peru imposed two times safeguard measures since 1995. From September 2001 to November 2003, it imposed a safeguard measure on the importation of aluminum bars and pipes from the Andean Community countries. In addition, safeguards on some oleaginous goods from Colombia have been imposed since November 2003. 67 The Supreme Decree No. 006-2003-PCM was notified to WTO in March 2003. 64 Peru – China Free Trade Agreement Joint Feasibility Study The CFDS is the body in charge of the investigation of dumping and subsidies cases. In this way, any domestic producer who deems to be harmed or threatened by the importation of similar goods under dumping conditions or unfairly favored by subsidies has the right to request the CFDS to start an investigation to determine the existence of dumping or subsidies, as well as the damage caused to the domestic production due to the importation of these goods. The CFDS is the administrative authority at first instance to resolve the investigations on dumping and subsidies. It only imposes anti-dumping measures and countervailing duties if the investigation has proved the following elements: - The existence of dumping or subsidies favoring the goods under investigation. The existence of serious injury or threat thereof to a domestic industry producing the similar goods. The causal link between the imports subject to dumping or subsidies and the alleged damage caused to the domestic industry producing the similar goods. The CFDS decisions can be appealed to INDECOPI’s Tribunal, which resolves in second and final administrative instance. Both decisions on first and second instances can be appealed directly before Peru’s Supreme Court. From January 1998 to June 2007, Peru completed 15 anti-dumping investigations on goods imported from China. 13 of these investigations resulted in the imposition of anti-dumping measures. Currently, 11 of these measures are in effect. 65 Peru – China Free Trade Agreement Joint Feasibility Study Peru: Antidumping Investigations on Imported Goods from China From January 1998 to June 2007 Product Date - Start of Investigation Decision after Investigation Current Status Electricity single-phased meters Feb 7, 1998 AD measures Revoked on Sep 26, 2005 Footwear with outer soles Feb 5, 1999* AD measures In force since Mar 7, 1997 Bodyboard surf-boards and kickboards Sep 2, 1999 AD measures In force since Oct 13, 1999 Weave, plain, twill and fabric made of polyester and polyester and cotton Apr 27, 2001** AD measures In force since Aug 1, 1995 Water meters May 26, 2001*** AD measures Revoked on Sep 18, 2003 New pneumatic tires Jun 6, 2001 AD measures In force since Sep 17, 2001 Stainless steel cutlery Jun 7, 2001 AD measures In force since Feb 19, 2002 Slide fasteners Oct 18, 2001 AD measures In force since Nov 15, 2001 Woven plain made of poplin or polyester Jul 19, 2002 Request denied - Hinges of base metal Jul 27, 2003 AD measures In force since Dec 17, 2003 Tableware, kitchenware and other articles made of porcelain Oct 18, 2003 AD measures In force since Oct 24, 2004 Stainless steel pots, teapots and frying pans Jan 25, 2004 AD measures In force since Aug 23, 2004 Weave made of cotton, bleached, unbleached and dyed Nov 13, 2004 AD measures In force since Nov 12, 2005 Denim weave AD measures In force since Jul 27, 2006 Sep 8, 2005 Footwear with uppers of textile May 23, 2006 Request denied * Request to extend AD measures to footware entering under two unaffected tariff lines ** Request to keep AD measures applied since August 1, 1995 *** Request to keep AD measures applied since November 24, 1995 Source: INDECOPI - With respect to the imposition of countervailing measures, none of the investigations on subsidies started during this period affected any product from China. Peru only conducted 3 investigations in this regard. One of them was declared groundless and at present, just the countervailing measures on the importation of olive oil from the European Union are in effect. 2.6 China’s Commitments Regarding the WTO China became a WTO member on December 11, 2001 and it has abided by WTO fundamental principles and general applicable stipulations since accession. It would ensure uniform administration and transparency of the trade regime and non-discrimination. It also makes commitments in trade in goods, trade in services and trade-related intellectual property regime, etc. China’s Protocol of Accession, accompanying Working Party Report and Goods and Services Schedules are available on www.mofcom.gov.cn. Like all acceding WTO members, China agreed to assume the obligations of more than 20 existing multilateral WTO agreements, covering all areas of trade in goods㸪 trade in services, as well as IPR etc. China made a commitment that upon accession it would participate in the 66 Peru – China Free Trade Agreement Joint Feasibility Study Information Technology Agreement ("ITA") and would eliminate tariffs on all information technology products as set out in China's schedule, furthermore, China would eliminate all other duties and charges for ITA products. China began to implement relevant tariff reduction on January 1, 2002 and became a member of ITA on April 24, 2003. One of the most important commitments made by China in acceding to the WTO was in the area of trading rights. The area of trading rights covers both the right to import products into, and export products from, China. In its accession agreement, China committed to substantially liberalize in the area of trading rights. Specifically, China committed to eliminate its system of examination and approval of trading rights, and make full trading rights automatically available for all Chinese enterprises, Chinese-foreign joint ventures, wholly foreign-owned enterprises and foreign individuals, including sole proprietorships, within three years of its accession, or by December 11, 2004, and trading rights will be granted in a nondiscriminatory and non-discretionary way, and any requirements for obtaining trading rights will be for customs and fiscal purposes only, and will not constitute a barrier to trade. Prior to the adoption of an automatic trading rights system, China committed that it would eliminate for both Chinese and foreign-invested enterprises any export performance, trade balancing, foreign exchange balancing and prior experience requirements, such as in importing and exporting, as criteria for obtaining or maintaining the right to import and export. This commitment took effect immediately upon China’s accession (on December 11, 2001). China further committed to expand the availability of trading rights pursuant to an agreed schedule covering the first three years of its WTO membership. First, China committed that it would make trading rights available to Chinese enterprises immediately upon its accession, subject to certain minimum registered capital requirements, to be gradually decreased during the three-year transition period (ending December 11, 2004). The minimum registered capital was to be set at RMB 5 million on December 11, 2001, and then reduced to RMB 3 million one year later (December 11, 2002) and to RMB 1 million two years later (December 11, 2003) before being eliminated three years later (December 11, 2004). Second, China committed that it would make full trading rights available to joint ventures with minority foreign ownership beginning not later than one year after China’s accession, except with regard to those goods still reserved for state trading under China’s accession agreement. Third, China committed that it would make these same trading rights available to joint ventures with majority foreign ownership beginning no later than two years after China’s accession. China Promulgated the Revised Foreign Trade Law of the People’s Republic of China, which became effective on July 1, 2004. Compare to the former Foreign Trade Law, it allows individuals to engage in foreign trade dealings, so the new revised law has extended the scope of foreign trade dealers to individuals who engage in foreign trade dealings in compliance with this law, and other relevant laws and administrative regulations. Furthermore, it has abolished the examination and approval procedures of import and export of goods and technologies dealings, and it has only required foreign trade dealer to register as required. China’s accession agreement also includes several special mechanisms. These include a unique, China-specific safeguard provision allowing a WTO member to restrain increasing Chinese imports that disrupt its market (available for 12 years), a special textile safeguard (available for 7 years) and the continued ability to utilize a special non-market economy methodology for measuring dumping in anti-dumping cases against Chinese companies (available for 15 years). In addition, the WTO also created a special multilateral mechanism for reviewing China’s compliance on an annual basis. Known as the Transitional Review Mechanism, this mechanism operates annually for 8 years after China’s accession, with a final review by year 10 or the earlier date decided by the General Council. We should note that China has been fulfilling its WTO accession commitments in a positive and serious sprit. Great improvement has been made in terms of legislative construction, market access opportunities, policy transparency since China accession to the WTO. China should also enjoy its rights while fulfilling its commitments, but there are some unfair treatments to China. For example, the market economy status of China and the implementation of Annex 7 to our accession protocol by certain members. Despite the fact 67 Peru – China Free Trade Agreement Joint Feasibility Study that China has made remarkable achievements over the past two decades in the establishment of its market-economy, and that Chinese companies are now totally driven by Market Forces in their business operations, we notice that few Chinese companies have been granted market economy treatment. To large extent, this is due to the fact that those criteria and procedures provided for in China’s Protocol of Accession, which justifies fair treatment towards Chinese companies meeting market conditions, are not properly reflected in the antidumping rules and practices maintained by some Members. These inconsistencies seriously impair the interests of Chinese companies, and impede the normal trade between China and these members. Table 2.8 Selected Aspects of China’s WTO Accession Trade in goods—China's average bound tariff level will decrease to 15% for agricultural products. The range is from 0 to 65%, with the highest rates applied to cereals. For industrial goods the average bound tariff level will go down to 8.9% with a range from 0 to 47%, with the highest rates applied to photographic film , automobiles, and related products. Some tariffs will be eliminated and others reduced mostly by 2004 but in no case later than 2010. Trading and investment regimes. National treatment/non-discrimination—Measures and practices that discriminate against imported products or foreign companies will be removed. Trade-Related Aspects of Intellectual Property Rights (TRIPs)—China will enforce the rights protecting intellectual property within China. Trade-Related Investment Measures (TRIMs)—Foreign investment approvals will no longer be subject to mandatory requirements (e.g., technology transfer or local content requirements). Agricultural subsidies—China has agreed to limit domestic agricultural subsidies to 8.5 percent of the value of production (i.e. less than the 10 percent limit allowed for developing countries under the WTO Agreement on Agriculture), and to eliminate all agricultural export subsidies upon WTO entry. Export subsidies—Upon accession, all forms of export subsidies inconsistent with WTO rules, including grants and tax breaks linked to export performance, were eliminated. Trade in services—foreign access is to be ensured through transparent and licensing procedures in various sectors, including banking and insurance, legal and other professional services, telecommunications, and tourism. Specifically: Telecoms-Upon China's accession, foreign service suppliers will be permitted to establish joint venture enterprises, without quantitative restrictions, and provide services in several cities. Foreign investment in the joint venture shall be no more than 25%. Within one year of accession, the areas will be expanded to include services in other cities and foreign investment shall be no more than 35%. Within three years of accession, foreign investment shall be no more than 49%. Within five years of accession, there will be no geographic restrictions. Banking—foreign financial institutions will be permitted to provide services without client restrictions for foreign currency business upon accession; local currency services to Chinese companies within two years (by December 2003); and services to all Chinese clients within five years (by December 2006) Insurance-Foreign non-life insurers will be permitted to establish as a branch or as a joint venture with 51% foreign ownership. Within two years of China's accession, foreign non-life insurers will be permitted to establish as a wholly-owned subsidiary. Upon accession, foreign life insurers will be permitted 50% foreign ownership in a joint venture with the partner of their choice. For large scale commercial risks, reinsurance and international marine, aviation and transport insurance and reinsurance, upon accession, joint ventures with foreign equity of no more than 50% will be permitted; within three years of China's accession, foreign equity share shall be increased to 51%; within five years of China's accession, wholly foreign-owned subsidiaries will be permitted. Trading partner safeguards. Anti-dumping. Under WTO agreement, other members can invoke “non-market economy” provisions to determine dumping cases for 15 years following accession. Non-market economy provisions imply that domestic prices cannot be used as a reference point and make it much easier to reach a positive finding in an antidumping investigation. Transitional product-specific safeguard mechanism—As provided under the WTO Agreement on Safeguards, a country may impose restrictions on imports if it can demonstrate that they cause or threaten to cause serious injury to domestic firms producing similar products. Source: Edited according to China’s Protocol of Accession and Working Party Report 68 Peru – China Free Trade Agreement Joint Feasibility Study 3 ECONOMIC RELATIONS, CHALLENGES AND PROSPECTS BETWEEN CHINA AND PERU 3.1 Trade in Goods China With the development of the Chinese-Peruvian trade and economic relations, and the complementarities in their economic structures, the two countries have witnessed continuous expansion of economic and trade cooperation, as evidenced by the rapid increase in the economic and trade activities. According to the statistics issued by China Customs, bilateral trade volume totaled US$ 3919 million in 2006, increasing by 35.80% over the previous year, with US$ 1009 million exports and US$ 2910 million imports on the Chinese side, increasing by 65.63% and 27.82% respectively. From January till March 2007, bilateral trade volume totaled US$ 1256, up by 61.49% over the same period of the previous year, with US$ 287 million exports and US$ 969 million on the Chinese side, up by 54.40% and 63.72% respectively over the same period of the previous year. China is currently the 2nd largest trade partner of Peru whereas Peru is China’s sixth largest trade partner in Latin America. The primary items that China exports to Peru are mechanical & electronic products, high and new technological products, textile products and garments, etc. while China’s imports are mainly fish flour and mineral products. China has long faced an unfavorable balance of trade with Peru, which has been increasingly widening in recent years. China’s trade deficit from 1998 to 2006 totaled US$ 6,662 million. Chart 3.1 Bilateral Trade in Goods exports imports 3500 2910 3000 2276 2500 2000 1524 1500 1000 500 732 760 498 418 177 247 354 1009 609 0 2001 2002 2003 2004 2005 2006 China-Peru' bilateral trade Source: the Ministry of Commerce. 69 Peru – China Free Trade Agreement Joint Feasibility Study Table 3.1 Chinese-Peruvian trade in main category in 2006 (thousands of US$) Exports Imports Category 1 626 76,205 Category 2 5,154 550,976 Category 3 7,320 2,059,645 Category 4 139,792 21,386 Category 5 31,018 592 Category 6 17,072 32,523 Category 7 159,578 19,385 Category 8 48,955 136 Category 9 180,728 148,608 Category 10 418,278 217 Total 1,008,523 2,909,672 Note: The products are classified mainly on the basis of the classification standard of Chinese customs. Category 1 includes Chinese customs’ Class 1 – Alive animals and animal products; Class 2: vegetable products; Class 3 – animal/vegetable fats, oils and waxes, prepared edible fats. Category 2 includes Chinese customs’ Class 4 – Prepared foodstuffs, beverages, spirits, vinegar, tobacco and manufactured tobacco products. Category 3 includes Chinese customs’ Class 5 – Mineral products. Category 4 includes Chinese customs’ Class 6 –Products of the chemical and allied industries; Class 7 – plastics and articles thereof; rubber and articles thereof. Category 5 includes Chinese customs’ Class 8 –Raw hides and skins, leather, furskins and articles thereof. Category 6 includes Chinese customs’ Class 9 –Wood and articles of wood, wood charcoal, cork, wickerwork; Class 10 –cellulosic material, waste paper, paper, paperboard and articles thereof. Category 7 includes Chinese customs’ Class 11 – Textiles and textile articles. Category 8 includes Chinese customs’ Class 12 – footwear, headgear, umbrellas, feathers and articles made therewith, artificial flowers, articles of human hair; Class 13 – Mineral material products, ceramic products, glass and glassware; Class 14 – natural or cultured pearl, precious stones, precious metals. Category 9 includes Chinese customs’ Class 15 – Base metals and articles of base metal. Category 10 includes Chinese customs’ all other miscellaneous products. Peru During the last years, Peru has placed the promotion of international trade as one of its main priorities. As a result, Peruvian global trade, exports plus imports, reached US$ 39,052 millions in 2006. It is important to highlight that, for the 2002-2006 period, the trade balance has showed an increasing surplus, explained by the improvement of Peru’s terms of trade. The following table shows, on the one hand, that the amount exported during 2006 reached US$ 23,779 millions, showing a trend with growth rates of over 35% since 2004, and with an average rate of 33% for all the period in analysis. On the other hand, Peruvian global imports also showed a positive trend, with annual growth rates of around 20% as from 2004. Consequently, Peru’s trade balance reached US$ 8,429 millions in 2006 representing the fifth consecutive year of trade surplus. 70 Peru – China Free Trade Agreement Joint Feasibility Study Peru’s Foreign Trade 2002-2006 (millions of US$) Trade Flow 2002 Exports 7,665 Imports 7,515 Trade Balance 150 Trade Volume 15,180 Growth rate % Exports Imports Source: SUNAT Elaboration: MINCETUR/VMCE/OGEE 2003 8,995 8,440 555 17,435 2003 17.4% 12.3% 2004 12,716 10,130 2,586 22,846 2004 41.4% 20.0% 2005 17,273 12,543 4,730 29,816 2005 35.8% 23.8% 2006 23,779 15,312 8,467 39,091 2006 37.7% 22.1% Peru directs its exports mainly to three regions: America, Europe and Asia. In first place, America represents on average 51.4% of Peru’s exports. Within this group, Peru’s most important partners are the United States, Chile and Canada. In second place, Europe demands on average 27.9% of Peru’s exports. Within this group, Peru’s most important partners are Switzerland, Spain, Germany and the United Kingdom. In third place, Asia represents 19.6% of exports. Within this group, exports appear very concentrated in China and Japan, being the former Peru’s second export destination among all trading partners. Peruvian Exports by Region 2002-2006 (millions of US$) Region 2002 Africa 35 America 3,436 Asia 1,454 Europe 2,678 Oceania 39 Rest of the World 24 Total 7,665 Source: SUNAT Elaboration: MINCETUR/VMCE/OGEE 2003 2004 33 4,152 1,588 3,119 58 45 8,995 2005 54 6,554 2,502 3,502 57 47 12,716 66 9,939 3,306 3,829 67 66 17,273 2006 121 12,104 4,920 6,503 48 83 23,779 Average % Particip. 02-06 0.44% 51.38% 19.55% 27.87% 0.38% 0.38% 100.00% It is important to mention that, among these three main destinations, both America and Asia have shown a very dynamic expansion in recent years, displaying an annual average growth rate of 37.0% and 35.6%, respectively, for the 2002-2006 period. The exports destined for Europe, in contrast, show some degree of stability, with relatively low growth rates, with the exception of year 2006. Peruvian Exports’ Growth Rates by Region 2002-2006 (millions of US$) Region 2003 Africa -5.0% America 20.8% Asia 9.3% Europe 16.5% Oceania 50.3% Rest of the World 86.2% Source: SUNAT Elaboration: MINCETUR/VMCE/OGEE 2004 63.9% 57.9% 57.5% 12.3% -0.8% 4.4% 2005 22.2% 51.6% 32.1% 9.3% 17.2% 41.1% 2006 82.5% 21.8% 48.8% 69.8% -28.4% 25.5% Annaul Average Growth 02-06 36.50% 37.00% 35.60% 24.80% 5.70% 36.20% As mentioned above, within the Asian Region, Peru’s two main trading partners are China and Japan, representing together about 70% of the Peruvian exports to this market. However, in the last five years, China’s average participation has more than doubled Japan’s share. 71 Peru – China Free Trade Agreement Joint Feasibility Study Peruvian Exports to Asia (millions of US$) Trade Partner 2002 2003 2004 2005 2006 Average 02-06 % China 598 676 1,245 1,871 2,269 1,332 48.3% Japan 374 390 554 606 1,231 631 22.9% Rep. of Korea 168 176 203 227 548 265 9.6% Chinese Taipei 110 147 242 301 420 244 8.9% India 22 19 50 79 102 54 2.0% Hong Kong, China 31 30 29 46 42 36 1.3% Thailand 26 27 31 25 65 35 1.3% Indonesia 25 23 22 36 30 27 1.0% 0.6% Philippines 14 11 9 7 45 17 Singapore 7 16 11 5 5 9 0.3% Malaysia 9 6 12 9 7 9 0.3% Others Total Asia 70 67 93 94 156 96 3.5% 1,454 1,588 2,502 3,306 4,920 2,754 100.0% Source: SUNAT Elaboration: MINCETUR/VMCE/OGEE Even so, China’s relevance as a Peruvian trade partner has not always been the same. Its leadership as the main Peruvian export market in Asia began to emerge during the second half of the nineties. During the period between 1996 and 2006, the annual average growth rate of Peruvian exports to China was 18.5%. This shows a sustained trend of increases that were temporarily stopped between 1997 and 1998 when the Peruvian export level to Asia decreased in 50.1% because of the strong financial crisis that hit markets in Asia and the Niño Phenomenon (1998) which negatively affected Peru’s exporting performance. Previously, during the 1980-1985 period, after experimenting an accelerated growth (30.5%) in the first year, Peruvian exports to Asia decreased considerably through the next four years. At that time, Peruvian exports to China, NIE-468 and other Asian economies showed constant growth rates along with a low share in total exports. Then, between 1986-1990, Peruvian exports to Asia followed again a swinging performance, as they first showed an average growth of 28.9% between 1987 and 1989, but later experimented a huge fall until 1991. It was not until the first half of the nineties that Peru recorded an export boom towards the Asian market. During this period, Peruvian exports to each of its main destinations registered a sustained growth and historically high rates, of 12.7% to Japan, 19.7% to NIE-4, and 50.5% to China and ASEAN-469. As a result of this growth, in 1996, exports to China exceeded the level destined to Japan. During the first year of the 1996-2000 period, exports towards the Asia Region followed an increasing path not seen since the early nineties, which was interrupted during the period between 1997 and 1998, caused by the aforementioned crisis. The recovery process started in 1999, and consolidated during the present decade. During the 2001-2006 period, Peru recorded an massive growth of its exports to Asia at an annual average growth rate of 30.6%, which was even higher than the observed in previous years. Exports sent to NIE-4 also followed an increasing path until the end of this period, while the gap between Peruvian exports to China and Japan kept growing. Nowadays, Peruvian exports to China represent 9.5% of the total exports to the world; making China the second most important trade partner to the country. 68 69 Newly Industrialized Economies (NIE-4) includes Korea, Hong Kong, Chinese Taipei and Singapore. This document considers ASEAN-4 as Thailand, Malaysia, Indonesia and the Philippines. 72 Peru – China Free Trade Agreement Joint Feasibility Study Peruvian exports to China for the 2002-2006 show a high concentration in two sectors which represent together 94.5% of the exported total. The first sector corresponds to metals, which adds 63% of the total exports to China. Inside this group, the most demanded products are copper minerals and its concentrates, lead minerals and its concentrates, and copper cathodes. It is relevant to mention that within this sector, the demand is highly concentrated in few products. Peruvian Exports to China by Sectors (millions of US$) Sector Agriculture excluding Fish Fish and Fishing Products Petroleum Oils Wood, Pulp, Paper and Furniture Textiles and Clothing Leather, Rubber, Footwear and Travel Goods Metals Chemical & Photographic Supplies Transport Equipment Non-Electric Machinery Electric Machinery Mineral Products, Precious Stones & Metals Manufactured Goods n.e.s Total Source: SUNAT Elaboration: MINCETUR/VMCE/OGEE 2002 1.6 325.3 0.1 1.0 8.7 259.8 0.4 0.9 0.0 0.0 0.0 597.6 2003 3.6 284.3 0.0 2.5 9.0 0.2 374.7 1.3 0.5 0.0 0.0 0.0 676.2 2004 2005 2006 18.3 440.9 0.1 8.1 12.5 0.4 759.2 5.0 0.0 0.0 0.0 0.1 0.0 1,244.6 17.5 595.8 17.1 19.5 16.1 0.3 1,194.6 9.1 0.1 0.3 0.1 0.0 0.1 1,870.6 44.3 453.9 99.8 44.8 12.8 0.9 1,602.2 10.0 0.5 0.1 0.0 0.1 0.0 2,269.4 Average 02-06 17.0 420.0 23.4 15.2 11.8 0.3 838.1 5.2 0.1 0.4 0.0 0.0 0.0 1,331.7 The second most demanded sector corresponds to Fish and Fish products, with a share of 32% of the total exports to China. The product with the highest demand is fishmeal, representing 97% of the sector exports, making it even more concentrated than the metal sector. Other relevant sectors are Agriculture excluding fish; Wood, Pulp, Paper and Furniture; and Textiles and Clothing, with an annual average participation of 1.28%, 1.14% and 0.89% respectively, for the 2002-2006 period. Regarding Peruvian imports from China, the demand is not as concentrated as in the case of exports. Nevertheless, there are some outstanding sectors which show significant import flows, such as Electric Machinery (23.1% of the average imported total for 2002-2006), NonElectric Machinery (16.4%), and Textiles and Clothing (13.0%). 73 Peru – China Free Trade Agreement Joint Feasibility Study Peruvian Imports from China by Sectors (millions of US$) Sector Agriculture excluding Fish Fish and Fishing Products Petroleum Oils Wood, Pulp, Paper and Furniture Textiles and Clothing Leather, Rubber, Footwear and Travel Goods Metals Chemical & Photographic Supplies Transport Equipment Non-Electric Machinery Electric Machinery Mineral Products, Precious Stones & Metals Manufactured Goods n.e.s Total Source: SUNAT Elaboration: MINCETUR/VMCE/OGEE 2002 4.4 0.0 0.0 10.2 85.7 40.3 21.8 53.1 16.0 51.3 84.2 28.7 68.8 464.4 2003 5.3 0.1 0.0 13.0 114.7 45.7 28.5 65.0 23.6 88.0 142.8 42.8 76.5 646.0 2004 5.9 0.2 0.0 17.4 72.8 55.3 39.5 88.5 34.5 130.6 205.5 33.7 85.7 769.6 2005 2006 7.5 0.3 0.0 27.0 127.7 68.1 57.8 127.0 44.9 187.1 264.2 45.1 102.8 1,059.5 12.4 0.5 0.0 41.3 185.6 85.5 190.6 170.2 72.6 283.4 349.9 58.5 133.2 1,583.6 Average 02-06 7.1 0.2 0.0 21.8 117.3 59.0 67.6 100.8 38.3 148.1 209.3 41.8 93.4 904.6 It is also important to mention that, for the all the years included in the period under analysis, Peru has showed a trade surplus with China, which accounted for US$ 686 millions in the year 2006. However, this surplus does not show in all trading sectors, but mainly in the ones of primary goods, such as Agriculture excluding Fish; Fish and Fishing Products; Petroleum Oils; and Metals. The largest trade deficit appears in the Electric Machinery sector, adding US$ 350 millions on the year 2006. 3.2 Trade in Services China In 2006, China’s imports and exports in service trade amounted to US$ 191,750 million, an increase of 22.1% over 2005. Among them, the exports amounted to US$ 9.20 billion, an increase of 23.7% over 2005, representing 8% of the global total exports in service trade, the third place in the world’s service trade exports in 2006; the imports amounted to US$ 100,830 million, an increase of 20.3% over 2005, accounting for 6.4% of the global total imports in service trade; China has a trade deficit of US$ 8910 million, down by 3.9% from 2005, largely due to the increase of trade surplus in tourism, computer and information service, and other business service, etc. Germany, the U.S. and China were the top three exporters of service trade in the world in 2006. China started to operate the business of engineering project contracting with Peru in 1986. As of the end of 2006, China had concluded contracts of engineering project contracting, labor service cooperation and design consulting with a total value of US$ 338 million, which realized a turnover of US$ 397 million, taking up only 1.3% of the total US$ 30 billion turnover of China’s engineering projects with foreign parties in 2006. China has only carried out a small number of contracting, labor service and design consulting businesses in Peru, and China’s presence in other areas of service trade in Peru is also limited to a small scale. 74 Peru – China Free Trade Agreement Joint Feasibility Study Table 3.2 China’s trade in services (E/I) (billions of US$) Total amount 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 Export 24.5 23.88 26.17 30.15 32.9 39.38 46.38 62.06 73.91 92 Import 27.73 26.47 30.97 35.86 39.03 46.08 54.85 71.6 83.17 100.83 Difference in amount (E-I) -3.23 -2.59 -4.8 -5.71 -6.13 -6.7 -8.47 -9.54 -9.26 -8.83 Export 2.94 2.3 2.42 3.67 4.64 5.72 7.91 12.07 15.43 21.02 Transport Tourism Other services Import 9.94 6.76 7.9 10.4 11.32 13.61 18.23 24.54 28.45 34.37 Export 12.07 12.6 14.1 16.23 17.79 20.39 17.41 25.74 29.3 33.95 Import 8.13 9.21 10.87 13.11 13.91 15.4 15.19 19.15 21.76. 24.32 Export 7.68 6.21 6.91 7.08 7.28 8.76 15.06 15.95 16.89 19.69 Import 5.25 5.44 6.59 6.12 5.74 4.98 6.46 8.48 9.39 11.26 Source: State Administration of Foreign Exchange. Chart 3.2 China's services Export and Import (1997-2006) (billions of US$) 120 100 80 60 40 20 0 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 Expotr Import Source: State Administration of Foreign Exchange. 75 Peru – China Free Trade Agreement Joint Feasibility Study Chart 3.3 Trade in Transportation Services (19972006) (billions of US$) 60 50 40 30 20 10 0 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 Export Import Source: State Administration of Foreign Exchange. Chart 3.4 Trade in Travel Services (1997-2006) (billions of US$) 70 60 50 40 30 20 10 0 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 Export Import Source: State Administration of Foreign Exchange. 76 Peru – China Free Trade Agreement Joint Feasibility Study Chart 3.5 Trade in Other Services (1997-2006) (billions of US$) 35 30 25 20 15 10 5 0 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 Export Import Source: State Administration of Foreign Exchange. Peru The participation of services in Peru’s GDP has kept relatively steady during the period between 2000 and 2006. During these years, services represented around 55.0% of the 70 GDP . In 2006, the main services activities, in terms of their contribution to the GDP, were retail trade; transport and communications; governmental services; and restaurants and hotels. During that same year, imports of commercial services, measured from the classification of the Balance of Payments (BOP), reached US$ 3,400 million, while exports registered US$ 2,451 million, with a deficit of US$ 949 million. Despite a slight fall in exports of services between 1999 and 2002, trade in services in Peru has showed an upward trend from import and export sides for the last 10 years. This growth is explained by market reforms and commercial openness that started in the early nineties. 70 Source: National Institute of Statistics and Informatics, please visit http://www.inei.gob.pe/. 77 Peru – China Free Trade Agreement Joint Feasibility Study Peru's Services Exports and Imports (1997-2006) US$ millions 4 000 3 500 3 000 2 500 2 000 1 500 1 000 500 0 1997 1998 1999 2000 2001 Exports 2002 2003 2004 2005 2006 Imports Source: BCRP, www.bcrp.gob.pe Regarding the exporting side, the Travel sector was the largest and represented 56% in 2006. Transportation and Other Services follow with shares of 21% and 15% in 2006, respectively. In the importing side, the Transportation sector represented 43% followed by Other Services (24%) and Travel (22%). 71 Transportation exports showed a steady evolution at the end of the nineties and then registered a clear upward trend, going up from US$ 294 million in 1997 to US$ 525 million in 2006. In contrast, Transportation imports have experienced a fast growth, from US$ 902 million in 1997 to US$ 1,460 million in 2006. These performances explain to a great extent the higher deficit on the services balance. Specifically, the freight transportation subsector, which registered an increase of 168% between 1997 and 2006, accounts for almost 70% of imports reaching US$ 1,077 million in 2006. The passenger transport and other subsectors registered increases over 40% and 55% in their imports for the period of analysis and accounted for US$ 245 million and US$ 137 millions in 2006, respectively. 71 Transportation is the process of carrying people and objects from one location to another as well as related supporting and auxiliary services. Passenger services cover the transport of people. It covers all services provided in the international transport of nonresidents by resident carriers (exports) and that of residents by nonresident carriers (imports). Also included are passenger services carried out within an economy by nonresident carriers. Freight services include the loading on board or the unloading of goods from carriers if contracts between owners of goods and carriers require that the latter provide that service. The subsector Other mainly includes port expenses of ships and airships, and commissions of transports. 78 Peru – China Free Trade Agreement Joint Feasibility Study Trade in Transportation Services (1997-2006) US$ millions 1 600 1 400 1 200 1 000 800 600 400 200 0 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 Exports Imports Source: BCRP, www.bcrp.gob.pe Travel72 Services is the only sector that registers a commercial surplus mostly explained by the strong growth of exports. These flows have shown an annual growth rate of 13% since 2001, and reached a value of US$ 1,381 million in 2006, after an up-and-down pace between 1997 and 2001. Import flows maintained a more steady evolution with values ranging from US$ 423 millions in 1997 to US$ 760 million in 2006. Trade in Travel Services (1997‐2006) US$ millions 1 600 1 400 1 200 1 000 800 600 400 200 0 1997 1998 1999 2000 2001 Exports 2002 2003 2004 2005 2006 Imports Source: BCRP, www.bcrp.gob.pe The evolution of the arrival of Chinese residents to Peru is a good proxy on the increased importance of the Peruvian exports of travel services to China. According to the General Directorate of Immigration and Naturalization (DIGEMIN), from 2001 to 2006, the number of residents in China coming to Peru rose from 2,813 to 7,865 persons, which represents a growth rate of 179.6%, higher than the total growth rate of people coming into Peru (58.3%). 72 It includes goods and services acquired from an economy by the travelers in that economy for its own use during visits of less of a year with enterprise or personal aims. Examples of these are: lodging, meals and transport (inside of the visited economy). 79 Peru – China Free Trade Agreement Joint Feasibility Study The Peruvian imports of Communication services maintained a relatively stable trend between 1997 and 2002, with values between US$ 67 and US$ 80 million. Since 2003, it experienced a strong growth, reaching a total of US$ 109 million in 2006. In contrast, the Peruvian exports in this sector strongly decreased sharply until 2003, going from US$ 168 millions in 1997 to US$ 46 million in 2003. After that year, exports in this sector started its recovering and reached a value of US$ 82 million in 2006. Trade in Communications Services (1997-2006) US$ millions 180 160 140 120 100 80 60 40 20 0 1997 1998 1999 2000 2001 Exports 2002 2003 2004 2005 2006 Imports Source: BCRP, www.bcrp.gob.pe Exports of Insurance and Reinsurance Services have presented a slightly decreasing trend during the analyzed period and reached a total of US$ 103 million in 2006, very similar to its value in 1997 (US$ 114 million). On the other hand, Peruvian imports on this sector display a positive trend in the analyzed period. This flow increased from US$ 160 million to US$ 265 million and registered an annual growth rate of 6%, which explains Peru’s trade deficit in this sector. Trade in Insurance and Reinsurance Services (1997‐2006) US$ millions 350 300 250 200 150 100 50 0 1997 1998 1999 2000 2001 Exports 2002 2003 2004 2005 2006 Imports Source: BCRP, www.bcrp.gob.pe 80 Peru – China Free Trade Agreement Joint Feasibility Study Finally, the sector Other73 has shown a large but vaguely decreasing deficit during the period of analysis. Exports registered a total of US$ 160 million and US$ 361 million for years 1997 and 2007, respectively; and an annual average growth rate of 9%. Additionally, imports had an annual average growth rate of 0.4% and totaled US$ 777 millions and US$ 806 millions for the same years, respectively. 3.3 Bilateral Investment China Economic cooperation between China and Peru has a late start but a fast growth. Peru is currently one of China’s biggest investment targets in Latin America. By the end of 2006, Peru has invested 152 projects in China with the agreed-upon investment valued at US$ 159 million, and the actual inflow of investment valued at US$ 34.06 million, covering a range of sectors such as electronics, real estate, automobile spare parts, and textiles, etc. China has increased its investment in Peru at a brisk pace over recent years. By the end of 2006, China has directly invested in Peru about US$ 600 million, with most of its investments flowing into the sectors of trade, textile and mineral resource exploitation. China’s Capital Steel Group and China National Petroleum Corporation (CNPC) have set up some big businesses in Peru, and gained remarkable economic returns. The Capital Steel Group purchased 98.4% equities of the original Peru Ferric Mineral Company with US$ 118 million in February 1992. CSC then set up the CSC-Peru Ferric Mineral Ltd., which is a successful example of Chinese invested company in mining in Peru. It also discovered copper mineral reserves in Husta region, to the North of Markena in 1997, which have great potential for exploitation value. CNPC set up its Peruvian subsidiary under its China-American Petroleum Development Company, which carries out projects in Peru. In the joint-venture, CNPC invested its technology, equipment, laborers and cash flows. China and Peru signed several government agreements in 2005, such as the Cooperation Understanding Memorandum for Investment Promotion, the Agreement for Promotion of Cooperation of Private Investments, and the Cooperation Understanding Memorandum for Further Cooperation in Exploration, Exploitation of Petroleum and Natural Gas, and in Oil Refining and Chemicals. China will promote the investments and technological cooperation with Peru in development and export of natural gas. CNPC will invest US$ 83 million in Peru to explore energy. If this agreement can be successfully implemented, which has the duration of 40 years, the investment in jungles in Southeast of Peru may reach US$ 1 billion, and Peru will become the net energy export country since 2009. Peru Numerous international groups from all regions of the world maintain a presence in Peru. Such foreign direct investment (FDI) comes mainly from both European and North American countries. In addition, in recent years South American countries have registered increasing investment inward flows to Peru. As of December 31, 2006, Spain and the UK are the main sources of investment for Peru making up 48.23% of investment stock, while the first 10 countries originate 88.9% of accrued investment. As to the sectors receiving FDI, 32.22% of investments were destined to the communications sector, mainly made in base telephony in the past decade. The industry sector accumulates 14.91%, and finance and mining sectors reach 12.08% and 18.66%, respectively. Additionally, a sizable portion of these foreign investments is related to natural resources, public services, banking, tourism and infrastructure. This process is fostered by companies’ internationalization strategies. In the case of investments originating from Asia, Africa and 73 It includes governmental, financial and computer services as well as royalties, equipment rent and business services, among others. 81 Peru – China Free Trade Agreement Joint Feasibility Study Oceania, the most important are related to mining, hydrocarbons and also large corporations providing machinery and electrical goods. Stock of Foreign Direct Investment (millions of US$) 16,000 14,000 12,211 12,000 13,304 13,512 15,442 9,541 10,000 7,285 8,000 6,000 12,987 13,628 14,206 8,106 6,238 4,441 5,055 4,000 2,000 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 Source: PROINVERSIÓN According to official statistics from the Peruvian Private Investment Promotion Agency (PROINVERSIÓN), the stock of FDI in Peru totaled US$ 15.4 billion at the end of 2006, while Chinese FDI stocks in Peru accounted for US$ 122.16 million, mostly focused in mining74. Most of this stock registered at PROINVERSIÓN is explained by the purchase of Hierro Peru (state-owned producer of iron) by Shougang Corporation in 1992. This places China as Peru’s 15th global investor and 2nd Asian investor (9th global and 1st Asian if ordered by Head Office FDI). Currently, Peru is attracting Chinese investments mainly in hydrocarbons and mining sectors. In the former case, China National Oil and Gas Exploration and Development Corporation is extracting oil in some lots allocated in the forest. Regarding the latter, Chinalco offered US$ 792.2 million to purchase Peru Copper in order to get the rights to operate the Toromocho project, a rich deposit in copper and zinc. 74 See http://www.ProInversión.gob.pe. It is important to mention that FDI statistics are undervalued since investment registration is not mandatory. 82 Peru – China Free Trade Agreement Joint Feasibility Study FDI Stock by Main Countries – December, 2006 (US$ millions) Country Spain United Kingdom United States Netherlands Panama Chile Mexico Brazil Colombia Canada Switzerland Japan Uruguay Italy China Singapore Belgium Total Source: PROINVERSIÓN FDI Stock by Origin Country 4,732.1 2,716.0 2,715.5 820.3 812.3 528.7 452.2 336.0 335.4 280.2 273.2 232.6 163.8 158.9 122.2 120.0 114.3 15,441.9 % 30.6% 17.6% 17.6% 5.3% 5.3% 3.4% 2.9% 2.2% 2.2% 1.8% 1.8% 1.5% 1.1% 1.0% 0.8% 0.8% 0.7% 100.0% FDI Stock by Head Office 5,071.4 496.3 2,722.3 213.1 1,018.2 1,251.1 341.0 243.5 756.6 924.4 233.2 253.5 15,441.9 % 32.8% 3.2% 17.6% 0.0% 1.4% 6.6% 8.1% 2.2% 1.6% 4.9% 6.0% 1.5% 0.0% 0.0% 1.6% 0.0% 0.0% 100.0% Finally, it is also important to mention that Peru has subscribed agreements for the promotion and protection of investments (BITs) with 30 countries in America, Asia and Europe. 3.4 Tariff Level Comparison Between China and Peru China Table 3.3 China’s Tariff Level Classification of Products Average applied tariff in 2006 Animal & Animal products 7.6 Vegetable Products 14 Animal or Vegetable Oil and Fat 12.9 Foodstuff & Beverage 18 Mineral Products 2.8 Chemical Products 8.1 Plastics & Plastic Products 9.9 Leather, Fur skins & Articles 16.1 Wood and Wood Products 6.9 Paper products 3.3 Textile and Apparels 10.4 Footwear, Hats & Umbrellas 18 Products of Mineral Materials 13.6 Jewel and Precious Metal 10.3 Base Metals & Articles Thereof 7.2 Telecoms, Electronics & machinery 8.8 Transportation Equipment 6 Precision Instruments 14.3 Miscellaneous articles 11 83 Peru – China Free Trade Agreement Joint Feasibility Study According to its WTO commitments, China has committed bounded tariff on all commodities, reduced the tariff rates remarkably, and abolished most non-tariff measures to further opening up the market. In 2007, the average tariff rate of China is 9.8%, of which, the average tariff rate for agricultural products is 15.2%, and the average tariff rate for manufacturing products is 8.95%. Now, China only exercises the administration of tariff quota on grains (wheat, rice and maize), cotton, vegetable oils, edible sugar, wool and chemical fertilizers, etc. In terms of tariff distributions in 2006, zero-tariff products of China account for 8.5% of the total number of 8-digit tariff headings, and the number of high tariff products with tariff rates greater than 15% is decreasing, with the proportion falling to 16.2%. In terms of tariff structures, the sectors such as agricultural products, transportation equipment, textiles and apparels, handcraft works and machinery equipment, etc. maintain high average tariff rates. The tariff reduction commitments of China made at the WTO accession have basically been fulfilled. Peru Peru applies only two types of import duty rates: MFN rates and preferential rates. Preferential rates are applied to imports originated in countries and regions with which Peru has concluded reciprocal preferential trade agreements, whereas MFN rates are applied to imports from all other partners, without taking into account whether they are members of the WTO. All tariffs are bounded and ad valorem. Furthermore, Peru has a moderate overall average applied tariff of 8.04% (or 5.04% if weighted by average imports for the 2004-2006 period), as at July 2007, with over 60 per cent of Peruvian imports entering at a 0% tariff rate. As the following table shows, Peru has been gradually lowering its tariffs since the early nineties, and has done two recent significant reductions, one in December 2006 and another July 2007, when its tariffs were reduced to only five levels of dispersion: 0%, 12%, 17%, 20%, and 25%75. Tariffs of 20% and 25% only apply to agricultural and textile goods. Evolution of the Average Tariff and its Dispersion (1990-2007) 70.0 60.0 Promedio Simple arancelario simple average Standard deviation Desviación estándar 46.5 50.0 40.0 30.0 16.8 13.5 20.0 11.9 10.9 8.04 10.0 Jul-07 Dec-06 Nov-05 Dec-04 Feb-04 Nov-02 Aug-02 Mar-02 Dec-01 Jun-01 Apr-01 Oct-00 Mar-98 Apr-97 Jul-92 Mar-91 Sep-90 Jul-90 0.0 Source: SUNAT Prepared by: MINCETUR/VMCE/OGEE 75 There is one additional level of 10% for only one subheading: Other yellow dent corn (10059011). 84 Peru – China Free Trade Agreement Joint Feasibility Study The following tables show the dispersion of Peruvian tariffs by tariff lines and by production sectors: Dispersion of Peru’s Applied Tariff Rate by Tariff Lines (July 2007) Applied Tariff 0% 10% 12% 17% 20% 25% Tariff Lines % 3,202 1 3,014 27 1,045 62 7,351 8.04 Total Average Source: SUNAT Elaboration: MINCETUR/VMCE/OGEE 43.56% 0.01% 41.00% 0.37% 14.22% 0.84% 100.00% Avge. Imports 04-06 (US$ millions) 7,802.3 178.0 3,920.2 31.2 695.6 18.4 12,645.7 5.04 % 61.70% 1.41% 31.00% 0.25% 5.50% 0.15% 100.00% Dispersion of Peru’s Applied Tariff Rate by Production Sectors (July 2007) Sector Agriculture excluding Fish Fish and Fishing Products Petroleum Oils Wood, Pulp, Paper and Furniture Textiles and Clothing Leather, Rubber, Footwear and Travel Goods Metals Chemical & Photographic Supplies Transport Equipment Electric Machinery Non-Electric Machinery Mineral Products, Precious Stones & Metals Manufactured Articles, n.e.s Total average Source: SUNAT Elaboration: MINCETUR/VMCE/OGEE Average Applied Tariff (July 2007) 13.31 11.92 1.30 9.12 17.24 8.79 6.55 4.43 3.24 4.99 2.05 5.80 7.45 8.04 3.5 Analysis of Competitive and Complementary Industries (Model Calculation) China A. Introduction of Main Indexes The key indexes in measuring the export competitiveness and complementarity of industries include RCA, RPC, RIX, RIM and TSC, etc. Table 3.4 sets out the calculation methods and description of these indexes. 85 Peru – China Free Trade Agreement Joint Feasibility Study Table 3.4 Trade Indexes Commercial Index Formula Description Reveal Comparative Advantages(RCA) (Xih/xi)/(Wih/W) Compares the importance of a specific sector or good within the total exports of a country, in relation to the weight of such sector or good in global trade; where the numerator represents the share of good h in the exports of country i, and the denominator indicates the contribution of good in global trade. Relative Purchase Capacity(RPC) (Mih/Mi)/(Wh/W) Allows to identify the sectors where the countries posses a disadvantageous position in global trade; where the numerator represents the share of good h in the imports of country i, and the denominator indicates the contribution of good in global trade. Relative Importance of Exports(RIX) (Xijh/Xih)/(Xij/Xi) Compares the importance of a specific sector or good h with in the exports of country i to country j, in relation to the weight of the exports from country i to country j in the total exports of country i Relative Importance of Imports(RIM) (Mijh/Mih)/(Mij/Mi) Compares the importance of a specific sector or good h within the imports of country i from country j, in relation to the weitht of the imports of country from country j in the total imports of country i. Trade Specific Coefficient(TSC) (Xih-Mih)/(Xih+Mih) Describe country i is a net exporter or net importer in good h The calculation is based on the customs’ six-digit HS codes. The following is a brief description of some important results of calculation. B. Results of RCA and RPC Calculation China’s data on these two indexes is available from China Customs’ statistics, and the world’s import and export data from COMTRADE global trade database. - Analysis of RCA Results Comparing with COMTRADE database and Chinese exports, 5222 products at six-digit HS level could be found in both sides. Among all 5222 products, there are 1940 with export competitiveness index above 1. It can be found that these 1940 products are distributed in every sector. Among 32 major products exported from China, there are 19 with RCA index value above 1, including textiles, trunks and suitcases, and small-sized mechanical and electronic products like digital automatic data processing machines & units. Only one of 20 energy raw material products has a RCA index value above 1(bituminous coal 270112). Among the products with RCA index value below 1, traffic control equipment, duplicating machines, semi-tractor engines, and hybrid integrated circuits have a relatively smaller value of RCA index value. Table 3.5 RCA Indexes of Main Exported Commodities HS Product Exports (million USD) RCA 847149 Digital Adp Mac & Units,Entered As Systems, Nesoi 29902 2.28 847350 Pts Suitble Fr Use W Mac Of 2/More Head 8469-8472 28355 0.29 847180 Automatic Data Processing Units, N.E.S.O.I. 24953 1.85 852540 Still Image Video Cameras & Othr Video Camera Rec 23709 2.68 853080 Electrical Signaling Or Traffic Control Eqpt, Nesoi 17320 0.31 854260 Hybrid Integrated Circuits 11955 0.57 901410 Direction Finding Compass 11045 0.23 847190 Adp Mac&Unts Thereof;Mag/Opt Rder,Trnscrb,Proc Dat 9207 0.47 852290 Pts & Access F Sound/Video Reproducing,Record Appr 7493 4.08 852020 Telephone Answering Machines 6291 2.93 870120 Road Tractors For Semi-Trailers 5871 0.08 852691 Radio Navigational Aid Apparatus 5860 1.23 86 Peru – China Free Trade Agreement Joint Feasibility Study - 852821 Video Monitors, Color 5845 853521 Automatic Circuit Breakers > 1000 V But < 72.5 Kv 5342 2.62 0.03 850490 Pts For Elect Transformers Static Converters Indct 5282 1.06 640399 Footwear, Outer Sole Rub Etc & Leather Upper Neso 5082 3.33 852312 Magnetic Tape Unrecord Width > 4 Not Over 6.5 Mm 4425 0.01 611030 Sweaters, Pullovers Etc, Knit Etc, Manmade Fibers 4414 5.27 640299 Footwear, Outer Sole & Upper Rubber Or Plast Neso 4302 7.36 950430 Coin/Tokn Oper Games Ex Bwlng Ally Eq; Pts & Acces 3891 0.12 847210 Duplicating Machines 3866 0.17 270112 Bituminous Coal, Not Agglomerated 3818 1.43 610910 T-Shirts, Singlets, Tank Tops Etc, Knit Etc Cotton 3804 2.92 420212 Trunks, Suitcases, Etc, Surface Plastic/Text Materials 3788 10.44 620462 Women's Or Girls' Trousers Etc Not Knit, Cotton 3646 3.25 847170 Automatic Data Processing Storage Units, N.E.S.O.I 3569 2.26 271011 Light Oils& Prep (Not Crude) From Petrol & Bitum 3487 0.34 851790 Pt Elect Appr F Line Telephony Or Telegraphy Etc. 3482 0.84 841581 Air Conditioning Mach Etc Incl Refrig Unit Etc 3168 2.89 392690 Articles Of Plastics, Nesoi 2984 1.25 850910 Vacuum Cleaners, Electromechanical Domestic 2942 4.12 271019 Oil (Not Crude) From Petrol & Bitum Mineral Etc. 2919 0.19 Analysis of RPC Calculation Results Similar with the RCA method, 1392 out of 5218 products have RPC index values above or equal to 1. Most of these 1392 products are aquatic products, mineral products, textile raw materials, furnish and equipment. The following table shows the RPC indexes of Chinese major import products. 27 of the top 30 products have RPC indexes above 1. The three products with RPC index value below 1 are crude oil (270900), other oil (271019), and passenger vehicle with an engine displacement from 2500 ml to 3000 ml. Table 3.6 RPC Indexes of Main Imported Commodities HS Commodities Imports(million USD) RPC 854221 Digital Monolithic Integrated Circuits 56906.38 4.33 270900 Crude Oil From Petroleum And Bituminous Minerals 47860.53 0.82 901380 Optical Devices, Appliances And Instruments, Nesoi 27666.44 11.52 854229 Monolithic Integrated Circuits, Other Than Digita 17437.47 3.18 852990 Pts,Ex Antenna,For Trnsmssn,Rdr,Radio,Tv,Etc Neso 16257.84 3.45 260111 Iron Ore Concen Nesoi & Non-Agglomerated Iron Ores 15917.51 7.45 847330 Parts & Accessories For Adp Machines & Units 15685.01 1.29 847170 Automatic Data Processing Storage Units, N.E.S.O.I 11418.29 2.52 271019 Oil (Not Crude) From Petrol & Bitum Mineral Etc. 10224.6 0.77 120100 Soybeans, Whether Or Not Broken 7777.374 6.03 854260 Hybrid Integrated Circuits 6680.504 3.5 853400 Printed Circuits 6568.682 3.48 847989 Mach & Mechanical Appl W Individual Function Neso 6521.8 3.02 880240 Airplane & Ot A/C, Unladen Weight > 15,000 Kg 5605.154 1.31 291736 Terephthalic Acid And Its Salts 5209.32 10.91 87 Peru – China Free Trade Agreement Joint Feasibility Study 740311 Refined Copper Cathodes And Sections Of Cathodes 4309.076 2.49 260300 Copper Ores And Concentrates 3662.899 3.38 290531 Ethylene Glycol (Ethanediol) 3527.289 7.57 520100 Cotton, Not Carded Or Combed 3192.72 5.88 740400 Copper Waste And Scrap 3181.105 5.86 852290 Pts & Access F Sound/Video Reproducing,Record Appr 3148.272 4 390210 Polypropylene, Pr Fms 3020.145 3.58 290250 Styrene 2989.842 4.9 901390 Pts Of Liq Crystal Device, Laser&Oth Optical,Nesoi 2834.628 8.69 850780 Storage Batteries Nesoi 2774.203 4.61 281820 Aluminum Oxide, Except Artificial Corundum, Nesoi 2593.422 4.44 390330 Acrylonitrile-Butadiene-Styrene (Abs) Copolymers 2579.319 6.04 854140 Photosnsitve Semicndctr Dvice Inc Phtvltc Cell Etc 2565.263 2.23 870323 Pass Veh Spk-Ig Int Com Rcpr P Eng >1500 Nov 3M Cc 2549.457 0.24 390120 Polyethylene Having A Spec Gravity Of 0.94 Or More 2511.796 2.82 Table 3.7 Products with higher RPC HS Commodities RPC 30332 Plaice Except Fillets, Livers And Roes, Frozen 15.1 261220 Thorium Ores And Concentrates 14.62 261710 Antimony Ores And Concentrates 12.85 901380 Optical Devices, Appliances And Instruments, Nesoi 11.52 71410 Cassava (Manioc) Fresh Or Dried, W/Nt Pellet 11.38 900662 Photo Flashbulbs, Flashcubes And The Like 10.92 291736 Terephthalic Acid And Its Salts 10.91 391530 Waste, Paring And Scrap Of Vinyl Chloride Polymers 10.9 470710 Waste, Scrap Unbleach Kraft, Corrugatd Paper/Pprbd 10.9 530490 Sisal Oth Text Fib Gen Agave Tow Waste Nt Sp Othe 10.86 854040 Data/Graphic Display Tubes,Color, W/ Pitch < 0.4 M 10.85 810790 Cadmium And Articles Thereof, Nesoi 10.64 530121 Flax, Broken, Or Scutched 10.23 290313 Chloroform 10.18 261000 Chromium Ores And Concentrates 9.77 910812 Watch Movements, Battery, Opto-Electronic Displ Only 9.76 260500 Cobalt Ores And Concentrates 9.75 845522 Cold Rolling Mills Except Tube Rolling 9.71 520542 Ct Yr N Sw Td > 85% Wt Ct Ml/Cb Cmb > 14Nm & N > 4 9.57 550992 Yrn N Swg Th Syn Stp Fb N Rtl Sl Oth Yrn Mx Cotton 9.41 911019 Rough Movements Of Watches 9.23 88 Peru – China Free Trade Agreement Joint Feasibility Study 901390 Pts Of Liq Crystal Device, Laser&Oth Optical,Nesoi 8.69 251511 Marble And Travertine, Crude Or Roughly Trimmed 8.38 30360 Cod Except Fillets, Livers And Roes, Frozen 8.33 510111 Wool, Not Carded Or Combed, Greasy, Shorn 8.26 844400 Machines Extruding, Drawing Etc Manmade Textiles 8.09 391510 Waste, Paring And Scrap Of Ethylene Polymers 8.06 721913 Fr Ss 600Mm Ao W Hr Cls 3-Un 4.75Mm Thck 8.01 410330 Swine Raw Hided/Skins,Nt Pretan,Frh Or Salted, Etc 7.97 720918 Flat-Cold-Rld Ir,Stl,Coils,600Mm Wide,<0.5Mm Thick 7.87 Marine products and mineral products account for a large share in the products with higher RPC index value. In addition to aquatic products, mineral products, primary raw materials, some spare parts of mechanical and electronic products, including unspecified LCD and optical devices, appliances and instruments (901380) and rough movements of watches (911019), have a high RPC index, too. - Analysis of RIX and RIM Results a) RIX Index China’s exports are mainly textiles, steel products, chemicals and medicines, mechanical and electronic products, etc. The results of RIX index calculation indicate that those sectors have higher RIX index (further details in Table 3.7). Table 3.8 Products with higher RIX Indexes HS 300331 Commodities RIX Medicaments Containing Insulin, No Antibiotics Etc 961.06 283711 Cyanides And Cyanide Oxides Of Sodium 232.64 330190 Concentrates Etc Of Essential Oils, Nesoi 160.57 720853 Fr Ios Nal 600 Ao Hr Nt C/P/C/Cls 3-Un 4.75Mm Thck 158.48 370210 X-Ray Film In Rolls, Sens, Unex, No Paper Etc 148.80 521111 Wov Cot Fab, Unbl Pl Wv Un85%Cot Mmf Ov200G/M2 133.05 370239 Phot Film No Sprocket Holes,Nt Ov 105Mm,In Rolls 122.44 521141 Wov Cot Fab <85% Cot Mixd Mmf Yn Dy Pl Wv >200G/M2 111.61 720854 Fr Irn/Nal Stl 600Mm Ao Hr Nt C/P/C/Cls Un 3Mm Thk 107.38 845939 Boring-Milling Mach Remove Met N Numerical Control 101.48 300431 Medicaments Cont Insulin, No Antibiotics, Dosage 96.16 722790 Bars And Rods Oth Alloy Stl, Hot-Rld, Irreg Coils 79.30 700521 Nonwrd Glss Clrd Opc Flshd Or Srfc Grnd N Ab/Rf Ly 71.61 293371 6-Hexanelactam (Epsilon-Caprolactam) 56.35 520922 Wov Cot Fab, 85% Cot, Bl 3-Or4-Th Twill Ov 200G/M2 50.66 720840 Fr Ios Nal 600Mm Ao Hr Nt C/P/C/Cls Pttrns In Rel 50.41 551432 Wv Fb Pol Sf <85% S F M/Ms Ct >170G/M2 Ydf 3-4T P 46.17 701720 Lab, Hyginc, Pharm Glswr W Lin Coef Nov 5X10-6 Nes 44.55 841869 Refrigerating/Freezing Equipment, Nesoi 44.40 841710 Ind Or Lab Furmnaces, Heat Treat Ore, Met Etc, N E 40.78 292423 2-Acetamidobenzoic Acid And Its Salts 40.11 283531 Sodium Triphosphate (Sodium Tripolyphosphate) 39.90 89 Peru – China Free Trade Agreement Joint Feasibility Study 480920 Self-Copy Paper, In Rolls Or Sheets Over 36Cm Wide 35.77 720852 Fr Ios Nal 600Mm Ao Hr Nt C/P/C/Cls 4.75-10Mm Thck 34.03 291521 Acetic Acid 33.81 480255 Paper Nesoi, Nov 10% Fib Mech Pr, 40G/M2Nov150G/M 31.46 732591 Grinding Balls A Sim Artic For Mills, Cst, Ios Nes 30.18 350510 Dextrins And Other Modified Starches 29.88 521142 Wov Cot Fab, Denim, Un 85% Cot Mmf Over 200 G/M2 29.73 284130 Sodium Dichromate 28.36 As shown in the list, the products with higher RIX index are mainly medicines, chemicals, equipment manufacturing machines and textiles, etc. b) RIM Index Among China’s imports from Peru, the products with higher RIM index are mainly mineral products and aquatic products, and almost all the top ten products in terms of RIM are related to these two products. For example, chloride oxides and chloride hydroxides of copper (282741) has a highest RIM index of 200.74, followed by flour, meal & pellet of fish crustaceans, a major item imported by China from Peru, with a RIM index of 157.52. Generally, Peru’s competitiveness as compared with China rests in the resource products. Table 3.9 Main RIM Indexes HS Commodities RIM 282741 Chloride Oxides And Chloride Hydroxides Of Copper 200.74 230120 Flour Meal & Pellet Of Fish Crustaceans Etc Inedib 157.52 160590 Mollusks, Etc., Prepared Or Preserved 134.62 150420 Fish Fats & Oils (Not Liver), Fract, Not Modified 118.81 510539 Fine Animal Hair, Carded Or Combed, Nesoi 93.71 261610 Silver Ores And Concentrates 90.43 261390 Molybdenum Ores And Concentrates Not Roasted 87.7 260700 Lead Ores And Concentrates 73.3 30749 Cuttle Fish & Squid, Froz, Dri, Salted Or In Brine 62.48 121291 Sugar Beet, Fresh Or Dried, Whether Or Not Ground 60.3 511000 Yarn Coarse Animal Hair Put Up Or Not Retail Sale 54.38 30270 Fish Livers And Roes, Fresh Or Chilled 41.06 260300 Copper Ores And Concentrates 39.29 790700 Articles Of Zinc, N.E.S.O.I. 35.92 520210 Cotton Yarn Waste (Including Thread Waste) 31.17 320300 Coloring Matter Of Vegetable Or Animal Origin 30.45 260112 Agglomerated Iron Ores 17.11 16.06 30420 Fish Fillets, Frozen 160413 Sardines/Sardinella/Brisling Prep/Pres, Not Minced 16.06 280490 Selenium 16.05 121220 Seaweeds & Other Algae Frsh Or Dried W/Not Ground 15.46 30739 Mussels, Frozen, Dried, Salted Or In Brine 15.21 80610 Grapes, Fresh 11.81 260800 Zinc Ores And Concentrates 11.05 520299 Cotton Waste, Nesoi 11.02 510810 Yarn, Fine Animal Hair, Carded, Not Retail Pk 10.97 520543 Ct Yr N Sw Td > 85% Wt Ct Ml/Cb Cmb > 43Nm & N > 5 10.41 510820 Yarn, Fine Animal Hair, Combed, Not Retail Pk 9.4 30759 Octopus, Frozen, Dried, Salted Or In Brine 9.37 90 Peru – China Free Trade Agreement Joint Feasibility Study 440799 - Nonconiferous Wood Nesoi, Sawn, Sliced Etc, Ov 6M 9.03 Analysis of TSC Results According to China Customs’ statistic, 5159 products at 6-digit HS level have trade flows in 2006. Among these 5159 products, there are 3164 products with a TSC index higher than 0, 1977 lower than 0, and the remainder equal to 0. There exists no clear demarcation in sectoral distribution between the products with a TSC index above 0 and those below 0. The major products with TSC index valued at 1 are some farm products and textiles, whereas the products with TSC index valued at -1 include, in addition to resource products, mechanical and electronic products and high tech products for which China enjoys no competitiveness or which China has not manufactured, e.g. gasoline vehicles with engine displacement above 3000 ml (870324), and helicopters with unladen weight in excess of 2000 kilograms (880212). - Analysis of the Chinese Export Supply to Peru We compare China’s RCA indexes and Peru’s RPC indexes. If China’s RCA about a subheading is higher than 1 while Peru’s RPC is higher than 1, then the HS code is expressed in gray in the table. From the table, we can find that the commodities that China has potential supply and Peru has potential demand are mostly concentrated on chapter 28, 29, 52, 73, 82, 84, 85. It means that in chemical industry, textile material of cotton, metal products, and mechanical products, China’s exports and Peru’s imports are strongly complementary. An FTA might stimulate China’s exports in these sectors. Table 3.10 Complementarities Table between China’s Export Supply and Peru’s Demand CHA RCA China 1 2 30559 30729 3 30614 30749 30710 30751 4 40221 40299 5 71232 71332 7 71239 71490 8 9 90910 10 140490 15 17 18 19 71290 80810 90610 100590 120220 12 16 40390 50400 110812 11 13 14 30759 160430 160520 190300 160590 160540 150500 151550 160414 30379 30791 40410 51110 71231 71333 80620 90230 100110 100830 110290 110422 120710 120720 130190 140190 151211 151499 21099 30191 30343 30375 40490 10511 20622 30269 30349 30563 40590 71310 71340 80940 90620 100300 100190 110520 110710 120810 120921 130220 80820 90930 100630 100400 110813 110814 120925 120991 130213 151610 151620 150200 150710 10210 20712 30339 30374 30623 40620 20629 RPC Peru CHA 1 20727 2 3 40819 4 5 7 81320 90411 90700 91040 8 9 10 100640 110900 11 120750 130239 120922 150790 151110 151710 151790 12 13 14 151800 152110 15 16 170111 170199 190110 190190 170211 170219 170290 170410 170490 180500 17 18 19 91 Peru – China Free Trade Agreement Joint Feasibility Study 20 200979 200870 210310 21 22 23 25 26 27 28 29 30 31 32 33 34 35 36 37 38 230800 251319 251400 253010 251910 251990 252310 220290 230110 250590 251010 252810 271311 282611 282620 282690 282734 282735 282739 282751 282759 283030 284990 283525 291522 292119 291540 291620 291634 291635 291711 291713 291720 291811 291812 291813 291815 291821 291822 291823 291829 291900 300432 300230 310100 310221 310559 320720 321310 320643 320740 330741 330430 340119 340490 271220 284390 283090 283324 283325 283326 283327 283340 283410 283510 283523 284610 291529 292142 292144 292159 292221 292222 292229 292239 292243 292419 292429 292520 292700 292990 293212 293213 293221 293293 300440 300290 310210 310230 310560 320416 320417 320415 320890 330111 330510 340211 340510 360200 370256 360300 370254 283660 283692 283699 283800 283919 283990 284170 284180 284920 283529 292143 293319 293331 293352 293354 293361 293369 293610 293723 293810 293890 293949 294000 294120 294130 294190 292090 293299 300450 300410 310530 310250 310590 320411 320412 320413 321000 330112 330590 340212 340520 350400 360500 370320 380690 381210 380130 200410 210111 210230 220710 230240 252921 270112 270400 281119 281511 281640 282010 282110 282619 200710 210112 210330 220840 230400 250510 250810 251200 200860 210130 210610 210210 210690 20 230670 251320 251830 252210 230990 252400 253020 253090 21 22 23 25 261610 262190 271210 280300 280440 280540 280620 280800 280920 281122 281310 284120 271290 281390 281520 281530 281830 282090 282490 282550 283220 284130 285000 290312 290323 290410 290512 290515 290516 290519 290532 290541 290544 290545 290911 290943 290944 290949 270900 282919 282990 283010 283110 283190 283210 282630 282710 282749 282810 290341 290342 290361 290542 290820 290890 291241 291242 291421 291511 291535 291619 291631 291632 291639 291719 291814 291816 300660 271019 283330 283429 283524 283531 283539 283610 283230 283311 282720 282731 300670 300220 310510 310420 310559 310430 310560 310590 310490 310510 320500 320641 320500 321100 330124 330610 340213 340530 350211 320611 320414 320611 321210 330210 330620 340219 340540 350300 320619 320620 320619 321511 330290 330690 340220 340590 350610 320210 320290 320630 321519 330300 330720 340290 340700 350691 320420 320490 320710 320110 320120 330410 330790 340311 340399 350710 330420 330491 340391 340410 350790 370110 370244 380290 370120 370251 380400 370130 370390 380590 370220 370510 380820 370239 370790 380840 370243 292010 292241 292242 292310 292511 292620 293010 293311 293372 293621 293622 293623 293624 293625 293626 293627 293628 293629 300640 300420 310490 310260 293721 293731 293930 294110 294140 291539 291550 291560 291570 291611 291612 291614 291615 291714 291731 271113 283720 283911 284020 284030 284161 284910 283620 283630 283321 283329 291732 291734 291735 291890 292112 292151 292211 292213 292320 292610 292910 293030 293040 293332 293353 210220 293420 293690 293929 293942 293961 293962 290230 290244 291260 291411 291412 291521 291531 291532 291533 26 27 283323 283421 283522 283526 283640 283670 283711 284011 284700 284110 28 29 30 31 380890 32 33 34 35 36 37 38 92 Peru – China Free Trade Agreement Joint Feasibility Study 382479 39 40 391740 390311 392310 390120 401199 401310 400700 400942 400942 401140 401519 380210 380830 380992 390760 391220 391290 391739 391910 390319 392350 390130 401320 401390 400821 401011 401011 401163 401590 420222 420231 420321 430390 441219 441293 441300 441400 420330 420500 420310 420212 420299 420329 460199 460210 460290 482360 482390 480100 480421 480519 480255 480429 480524 480254 482020 392094 392210 392321 392340 391732 390230 392113 390110 401700 400591 400941 400941 401039 401410 380610 380991 392620 392690 380520 381590 380993 392043 392112 392220 392329 391990 390320 392510 390210 400300 401019 400911 401012 401012 401169 401699 380810 381600 381119 392640 392030 392091 381700 381900 381121 380910 382000 381190 382410 382100 381300 392049 391610 392061 390950 392010 390410 390430 391239 401511 401692 400912 401013 401013 401193 392020 390422 390530 390940 401120 401150 400921 401031 401031 401194 391000 390690 390599 391190 390720 382440 382313 381400 391710 391721 391729 391731 391231 390910 401695 401694 400922 401032 401032 401211 401162 401161 400931 401034 401034 401212 400122 400219 400932 401035 401035 401219 41 42 43 44 45 46 47 52 53 54 55 39 400220 400249 400400 400520 401036 401290 411410 420229 420610 491000 500720 511230 520548 520613 520622 520623 520632 520839 521159 531100 530620 540500 540620 540741 551343 551349 551411 551412 551413 551419 551423 40 41 42 43 442010 442090 442110 442190 440310 441111 440690 441121 441031 441139 441032 441039 44 450490 48 49 50 51 382460 382490 500790 511300 520919 520921 520929 520931 520939 520841 521212 530890 530929 540783 540792 540821 551299 551319 551323 551331 551333 551339 551441 500200 510529 520641 520812 520819 520823 520829 520842 521221 531090 540341 540262 540752 551642 551644 551691 551692 551693 551694 551432 480256 480431 480525 480910 481610 490191 500390 510539 520949 521029 521042 521112 521119 520843 520941 530590 540774 540753 540754 551522 551439 551429 551449 480257 480441 480591 482110 481620 490199 480258 480451 480620 482320 481630 490600 510121 520514 520522 520523 520543 520547 521143 510219 520959 521011 521021 521141 521142 521149 470321 480261 480459 480630 482340 481840 490700 470329 480300 480511 480820 482370 481890 490890 470720 480411 480512 480830 520524 520526 520528 520535 520942 521224 520625 521031 521041 521049 521129 520943 520932 521051 520821 520822 520832 520922 520951 520952 521122 540242 540249 540251 540782 551511 551614 551621 551622 551623 540210 540220 540231 540720 550120 550130 550410 550610 551521 540233 540243 540761 540769 540773 540793 540781 550320 550390 550810 550820 550921 550922 550942 551211 551311 551312 551321 551341 551342 551421 551422 551433 551443 45 46 47 48 481930 491199 49 50 51 520100 520512 520513 520515 520521 520615 521131 531010 540252 540342 540410 540744 550620 550630 550951 550953 52 53 54 55 93 Peru – China Free Trade Agreement Joint Feasibility Study 56 57 58 59 60 61 62 63 64 65 66 68 69 70 71 560890 560900 570299 580390 580429 580500 580610 590320 600534 600542 610792 610811 610821 610822 610831 610832 610839 620433 620439 620441 620442 620443 620469 620530 630299 630493 630520 630532 630590 630612 630619 630621 640610 640691 650400 650590 660199 681091 681410 681591 691410 691490 701400 701890 701912 701919 701939 711719 720521 720719 720836 570500 580890 581010 581099 580810 600590 600621 611220 611231 611241 611249 611300 611420 611430 620349 620413 620419 620421 620422 620711 620722 630311 630312 630319 630391 630392 630399 630419 630491 640520 640590 650510 650610 660200 560391 560392 570310 560729 560749 570292 580122 580136 580421 590210 580620 581091 581092 590310 590700 600624 600642 610910 610990 611011 611012 611019 611020 611030 621390 621410 621420 621430 621440 620630 620610 630622 630629 630649 630699 630710 630720 630790 630492 640320 640340 711790 721399 721430 721720 732310 580430 590900 591000 600110 600532 611211 611090 611120 611130 610891 610892 610899 621310 620423 620429 620431 620432 620719 620721 570242 560394 560500 560721 56 570252 591120 600410 600632 611790 611710 611720 611780 611511 611519 611592 620343 621490 621510 621600 621790 620640 620690 591131 590390 591132 600240 600634 58 59 591190 600533 600633 60 610130 611212 611219 61 620342 620453 620459 620461 620462 620463 620590 621520 620331 620332 620333 620339 620341 620729 621111 621142 621143 621210 621220 621230 621290 62 63 640220 640299 650100 650699 640192 640620 650691 650700 640510 64 65 66 680430 681190 681290 690210 690220 700239 701331 701321 701329 701339 701610 701690 701820 722694 722820 722860 720211 720230 720299 720837 721391 721420 721790 722830 722880 722530 730300 722920 722540 730650 732510 57 630229 630510 700490 700521 700529 700991 701200 722790 731600 570330 560221 560229 560393 580710 580790 640319 691200 701959 702000 701990 560819 660320 72 73 611593 611599 611610 611691 611692 611693 611699 621320 620444 620449 620451 620452 620510 620520 630800 630240 630291 630411 630533 630539 630691 560750 560811 570210 690290 690790 700312 701332 701931 720310 720449 720720 720839 720840 720852 722550 730792 700319 701510 680422 680690 680911 690912 691090 700320 701720 681110 681260 681270 690390 690890 700420 701790 681310 681599 690310 690320 701090 701810 68 69 70 720853 720854 720916 720918 721011 721012 722592 730890 721041 721050 721061 721210 721240 721310 722693 731414 711420 721410 721622 721631 721633 721640 721922 711039 721923 721924 721931 721935 721990 722240 71 731450 730210 73 72 94 Peru – China Free Trade Agreement Joint Feasibility Study 731812 731814 731819 731823 731449 732020 732392 74 75 76 78 79 81 82 83 84 732619 732620 732690 741110 741121 741122 732393 732399 732421 732490 732211 731590 731811 731821 741819 741820 741991 760719 761010 761691 760429 810210 810295 810296 810320 820551 821193 820559 820570 820590 820600 830242 830249 830250 845210 845221 845240 845410 845899 845929 846090 846150 846591 846592 846596 841810 841939 842129 811100 811229 811292 811299 821290 821194 821195 821490 821599 790310 810411 810419 790390 811300 830810 831000 831130 842420 842490 842520 842542 842549 842612 842619 843050 843319 844841 845090 841850 841950 842131 843139 843141 843142 843143 843149 843221 843359 843360 843410 843420 843510 843610 731822 730459 730793 741220 741510 741210 730429 730490 730519 731582 731589 732111 730512 730900 730711 730719 730721 730722 730791 731816 730531 731010 761410 730799 730820 730840 731511 731520 731920 730539 731021 761490 731210 731290 731300 731700 731815 732611 730610 731100 731419 731431 731441 731824 731910 731519 730620 731412 732391 732394 732410 732591 732599 731581 730640 731413 750511 760421 761519 730240 730410 730421 730431 730439 730451 730690 731512 740620 741012 741910 750521 761290 780600 74 75 76 78 79 810920 81 821510 821520 830260 830300 830400 846721 846722 846729 846799 846880 846890 846920 846930 847010 847030 831120 845959 846410 846719 846781 847021 847029 847050 847150 847290 848180 848210 848320 841869 841989 842191 848220 848230 848250 848280 848299 848330 848340 848360 848390 848410 848490 848590 841899 841990 842199 844330 844359 844400 844511 844512 844519 844530 844540 844590 844610 844621 844629 847720 847730 847740 820110 820130 820140 820320 820411 830110 830130 830140 840212 840732 840790 841012 841381 841392 841420 841780 841821 841830 841861 841920 842111 842220 845180 845190 845230 845310 845320 845380 845390 845430 846019 846039 846231 846249 843810 843820 843830 820190 820210 820231 820239 820310 830220 830510 830520 842381 842382 842390 842410 842519 842531 842790 842840 843041 844140 844351 841931 842112 842230 842833 842911 842920 842940 842951 842952 843049 843061 843069 847420 847431 847432 847439 847490 847710 821420 820412 820510 820520 820530 830590 830790 831110 844513 844520 844790 845011 845012 845019 845140 845229 845290 845420 845819 841932 842119 842240 847780 847910 847920 847982 848050 848060 848110 848130 848140 843621 843629 843691 843710 843780 843790 820540 821000 821192 821300 821410 841370 841382 841391 841440 841459 841460 841480 841490 841520 841610 841620 841710 842121 842290 843840 843860 843880 843890 844010 844110 844180 844210 844312 844711 844712 844720 844819 844820 844831 820220 820240 820291 820340 820420 821591 830990 841011 841013 841090 841199 841221 841229 841239 841311 841330 841340 841360 841720 842122 842320 844842 844849 844851 844859 845020 845110 845129 845130 845150 846310 846330 846490 844832 844833 844839 820713 820719 820830 820890 821210 821220 830621 830710 830910 840211 840219 840290 840420 840490 840510 840590 840690 840810 840890 840999 841790 842123 842330 842389 842481 842511 842641 842649 842699 842720 842810 842832 846594 846711 846789 846791 846792 847410 82 83 84 95 Peru – China Free Trade Agreement Joint Feasibility Study 85 850990 851010 851020 851030 851120 851210 851529 851610 851629 851631 851632 851660 851671 851672 851690 851721 851810 851821 851829 851830 851840 851890 851921 851929 851999 852020 852033 852090 852110 852210 852530 852540 852691 852712 852721 852729 852732 852821 852822 852830 852910 852990 853110 853180 853222 871200 871390 871680 871690 871110 871190 870410 86 87 853225 853321 853340 853400 853641 850980 854451 851711 852290 853224 860120 871494 871499 870421 88 89 90 91 92 901530 901730 901790 900912 902121 902610 850152 850211 850220 850410 850610 850940 851230 851310 851390 851511 851633 851640 851650 851679 851719 860900 870110 871120 870422 890400 900490 901180 901720 901780 902212 902620 910291 910310 910390 850120 851730 851750 851822 851850 852190 852390 852520 852713 852719 852731 852739 852812 852813 853661 860210 871310 871419 870423 900653 900662 900669 900691 900699 900830 910591 910599 910690 910811 920410 920420 901910 902890 903020 903031 903300 900580 900590 900640 900890 900991 911320 911410 911420 911430 920992 920994 910820 910812 920290 920510 920910 920999 940179 940180 940320 940330 950490 950510 950590 950619 960390 960630 960839 960840 960850 940520 940540 940550 940591 950390 950410 950420 950440 961320 961390 961420 961490 961800 940350 940360 940390 940592 940599 940130 940210 940410 940429 940530 950699 950710 950730 950790 961380 960500 950629 950631 950639 950100 950210 950360 950380 950662 950720 960720 960810 960820 960910 960321 960329 960350 960621 853922 853929 853931 853932 854420 854511 854519 854590 854620 854790 851180 851539 851580 851621 851780 852039 852311 852330 852431 852440 853210 854470 854520 854690 850133 850134 850153 850164 850213 850239 850240 850421 853339 853510 853521 853530 853540 853590 860290 871492 871493 870520 870880 860400 871496 871495 870530 870893 860699 902511 902519 902580 902830 902213 902680 910519 910610 900792 900921 900922 901010 902221 902780 920190 920710 920920 95 96 - 85 86 87 88 89 90 91 93 94 901110 901480 901520 902000 902300 902810 871500 870540 871411 880390 890710 901600 901812 901831 901832 902480 902820 850422 850423 850433 850434 850710 850740 850920 851110 853620 853649 853720 853910 854210 854459 854460 860729 870120 870210 870600 871631 880212 890790 900620 900711 900720 901850 902590 903039 910529 92 930200 930610 930621 93 94 950430 95 960990 961220 961511 961700 960622 960711 960719 960200 961519 961590 961620 960629 960400 960831 961100 961210 961610 960610 96 Chinese Export Supply to Peru The graphic 3.6 shows the Chinese supply ability to Peru. There are 2307 kinds of products, which have RCA indexes of China, RPC indexes of Peru, and RIX indexes of China. From the graph, there are 427 kinds of products with RCA index of China higher or equal to 1 and RPC index of Peru less than 1. Among these products, 147 kinds of products have an RIX index less than 1. It means that once the FTA is signed, the exports from China to Peru of these 147 products might have a bit increase. In a detailed analysis, it can be found that besides a 96 Peru – China Free Trade Agreement Joint Feasibility Study few agricultural products, the textile, steel and electromechanical products take a great share of all these products. Chart 3.6 Analysis of the Chinese Export Supply to Peru - Analysis of Chinese Import Demand Similar with above tale, the HS codes of which China’s RPC is higher than 1 and Peru’s RCA is higher than 1 are expressed in gray in the middle of the table. It can be found that 80 products are in the gray area. The copper products, chemical products and cotton are all included in this category. It is similar with the above table except that fewer mechanical and electronic products are in the gray area. Table: 3.11 Complementarities Table of China’s Imports Demand and Peru’s Export Supply CHA RPC China 1 10310 2 20649 30319 30374 3 30379 4 5 6 7 8 30791 30559 30729 10512 10511 10632 10639 30380 30759 30563 30270 30760 30751 30611 30321 30490 30749 30613 30349 40291 30799 30741 30624 30375 40700 51191 70810 71022 71220 80121 80440 90111 70890 71040 71290 80122 80450 90420 70920 71080 71333 80290 80520 91030 110290 110423 120991 120799 110620 120999 121190 50800 50590 71390 71410 70310 80240 81340 81090 100110 110610 120100 100300 110813 120740 81190 81400 9 10 12 110814 121230 RCA Peru CHA 10690 1 20725 2 30110 30250 3 30721 30420 40819 4 51199 5 60499 6 71010 71120 7 71339 80300 8 80610 91040 9 100890 10 110812 121130 12 121220 97 Peru – China Free Trade Agreement Joint Feasibility Study 13 14 15 140110 151190 151530 151329 160239 16 17 18 19 200190 200590 26 27 28 29 31 32 250300 251311 251511 260200 261000 270111 271320 280120 280461 280480 283711 283719 284019 290230 290322 290323 290420 290512 291900 292910 310260 310420 320190 320210 320412 321000 251512 252400 252510 260900 261390 270740 271490 281122 281820 282110 282735 283324 283510 290513 290517 290519 290532 290545 292213 293040 310430 310520 320414 320416 320490 321100 253090 252890 340213 340311 350610 340391 340399 350691 340490 340590 350699 260112 290611 290711 290810 290943 291411 292419 293331 310530 310551 320611 320641 320649 321210 33 34 35 36 37 38 39 150420 151229 150410 160414 160420 170111 180400 190219 200560 200939 160413 160416 200290 200891 200551 200899 130239 140410 151590 152000 160415 160590 170410 180632 190531 200570 200980 210410 220820 23 25 130219 180320 20 21 22 130214 370243 380110 380991 380992 390110 390120 390130 390190 390210 390290 390319 370244 380993 381010 381090 390410 390421 390422 390440 390450 390530 390610 370710 381121 381129 381190 390720 390730 390740 390750 390791 390799 390920 230120 230210 250100 252810 250200 250840 252321 260300 261610 260111 260700 271112 271113 280450 280490 280700 281512 283326 291412 291521 291570 291611 291612 291732 291739 281000 282550 283525 281700 283329 282741 291620 291712 291720 230230 230800 250900 251110 252329 260800 284329 281121 281511 282410 283990 283322 230610 230990 252010 252310 252620 262030 261690 271011 271019 280110 280540 280610 282490 284020 283325 290410 292242 293010 293991 310100 320720 320810 320990 321290 330790 381230 381400 381519 390940 390950 391000 391110 391290 391510 391530 321519 320300 320500 320290 330190 382311 382370 382490 391731 391990 392043 392051 392061 392062 392069 330499 330113 340510 360300 360200 382420 380290 382319 392020 392330 392350 13 14 15 16 17 18 19 20 21 22 23 25 26 27 28 29 31 32 33 34 35 36 37 38 390512 392010 39 98 Peru – China Free Trade Agreement Joint Feasibility Study 40 41 42 43 44 47 48 49 51 52 53 54 55 56 58 59 60 61 390390 392092 400122 400239 410150 410210 410310 411390 390690 392099 400299 400700 410441 410449 410711 411410 390930 392112 400911 401013 410712 410719 410799 411510 391590 392113 401610 392091 411200 411310 411320 410622 410190 410221 410530 410621 410411 410419 410510 410632 430180 440399 430220 441129 430219 440726 430400 440729 441214 470321 470710 470321 480240 480429 481630 490600 510111 510121 511219 520100 520511 520512 520521 520532 520932 520939 520941 520949 470730 470790 470710 480441 480511 482110 490890 510529 510720 511220 520533 520542 520621 520622 520623 520951 521031 521032 521039 520823 530620 540231 540251 540769 540792 550310 550942 550992 551321 551339 551519 560290 560312 580190 580421 580610 590800 600330 600532 600622 600632 470720 470730 470790 480519 480630 482312 430390 440799 441219 441292 610110 610422 610462 610210 610431 610510 530310 540110 540249 540761 540782 550110 550932 550991 551299 551333 551429 560122 560129 580121 580122 580125 590310 600191 600523 600621 600631 611790 611691 611710 511111 511119 511230 520631 520632 520642 520831 520832 521041 521042 521049 521051 520822 530890 540233 540261 540772 540822 550320 550961 551012 551323 551411 551599 560391 560393 580620 580632 580710 591190 600410 600590 600623 390521 400610 401169 410229 410692 420610 440724 440890 441213 440920 40 41 42 43 44 47 480990 481151 482319 511190 511211 520833 520839 520842 520843 520851 520911 520912 520919 520931 521142 530919 540241 540262 540773 540823 550490 550962 551020 551329 551421 551692 560394 560790 580790 581100 590390 600490 600610 600624 610331 610220 610441 610520 482020 482030 480530 481810 481930 491110 510129 510320 510820 520411 520526 520527 520528 520543 520544 520546 520547 520548 520613 490191 510710 511290 510990 521131 521132 521139 521141 521151 521214 521223 520853 520859 520790 530929 540243 540752 540781 540832 550810 550969 551219 551331 551423 490591 510219 510539 510910 520210 520522 520524 520531 520541 520612 520841 520921 520922 520959 550130 550330 550630 550999 550620 551110 551120 551341 551513 560229 560410 560811 560819 560600 560750 580500 48 49 51 52 53 540620 54 55 56 58 591120 59 600533 610322 610442 610610 610342 610451 610620 600121 600521 600522 610421 610452 610711 60 61 99 Peru – China Free Trade Agreement Joint Feasibility Study 62 63 64 65 68 69 70 71 72 73 74 75 76 78 79 80 81 82 83 84 621790 610721 610721 611019 620211 610821 610821 611020 620343 620791 640620 640691 640699 680430 681599 690290 700239 701110 710420 711590 720449 720529 720839 720854 722090 722691 730421 730429 730441 740400 740610 740721 741539 741999 750610 760200 760719 780300 790400 800120 800700 810194 811240 820720 830160 840219 840290 840490 840690 840810 840890 841090 841221 846490 846592 846593 846594 846599 846620 846693 846694 690310 701190 701400 711011 720926 721012 721049 721061 722100 722694 731290 731589 731821 740729 740822 740911 741991 750890 760611 761610 780600 610831 610831 611120 620422 620821 630120 691410 701590 701919 701959 701990 702000 721070 721090 721190 721399 722230 722699 730459 730690 730792 740921 740929 740939 710812 721640 721730 721790 721914 722300 722990 731822 731823 731824 740940 741011 741012 711319 721933 721934 721935 722012 722540 740821 740829 760612 760691 732020 741521 741529 741533 740811 740919 610910 610910 611430 620610 621141 630190 640110 681290 681310 691090 700992 710310 711411 732394 732591 732611 740200 740311 740321 740819 741510 610990 610990 611591 620630 621420 630533 640192 650692 680221 681490 691390 700100 700721 710691 711719 721041 721420 721621 721622 722830 722880 731300 731441 731442 740120 740312 740710 62 63 64 65 68 69 70 71 72 73 74 75 790111 790390 800300 800500 810920 820730 830810 841229 841231 841239 841319 841350 841370 841381 841430 845310 845320 845380 845420 845430 845530 845699 845720 610891 610891 611420 620520 621131 630130 820810 831000 841451 841480 841610 841620 841710 841780 841790 841931 847730 847759 847780 847810 847910 847981 847982 847989 820890 831120 841932 841939 841950 841989 842010 842099 842119 842129 844540 844610 844621 844711 844720 844790 844820 844831 780110 790120 810720 811292 821194 831130 842220 842230 842320 842430 842489 842511 842531 842539 842542 842619 842810 842832 842833 842839 843050 843352 760519 761210 780191 790112 780199 790700 790500 800110 810790 811010 830170 840410 844319 844329 844351 844359 844512 844520 844530 848210 848240 848250 848280 848310 848340 848410 846249 810600 811020 821410 831190 840212 848490 76 78 79 80 81 82 83 84 100 Peru – China Free Trade Agreement Joint Feasibility Study 85 86 90 91 92 93 94 95 96 - 846820 846890 847141 847149 847170 847330 847350 847410 847420 847710 850110 850151 850153 850164 850212 850213 850300 850423 850431 850434 850440 850450 850490 854419 854449 854710 860721 900110 900190 900211 900290 900590 903089 903090 903110 910400 920992 950299 960621 960622 845811 845899 846039 846040 846090 846150 846190 846221 846239 847720 850511 850519 850520 850730 850780 850790 851430 851440 851490 851529 851580 851810 851829 854190 854221 854319 860791 900640 900999 901210 901380 901580 903149 903180 903281 910990 950639 960629 960630 847990 848041 848049 848071 848079 848120 848130 848140 848180 844180 851830 851890 852290 852320 852390 852439 852530 852990 853210 853222 853229 853321 853331 854451 854520 854620 860800 901790 901812 901813 902212 902230 903289 903300 844839 844842 844851 844859 845130 845140 845150 845180 845290 844230 853340 853390 853400 853521 853529 853530 853590 853610 853641 853650 853669 853690 853710 854229 854260 854270 843420 843510 843710 843860 843880 843920 843999 844110 844140 846291 846310 846390 846420 848420 848510 847439 847480 847529 853720 853810 853890 853932 853939 853990 854011 854050 854081 854110 854129 854140 854150 854411 854790 854320 850690 902410 902480 902610 902690 902720 902780 903020 903039 903040 903083 911180 911440 911490 960719 960720 850740 852453 854340 85 860120 960899 86 90 960711 930630 940370 950662 960810 960820 91 92 93 94 95 96 China’s Import Demand from Peru The graph shows the China’s potential demand from Peru. A product of which Peru’s RCA is higher than 1, China’s RPC higher than 1 while the RIM is less than 1 is the one that China has potential demand from Peru. In this graph, the up area of quadrant 4 presents such products. There 17 subheadings in this area include snails, boron, wool, cotton, brass, zinc and zinc alloys etc. That mean agriculture products and raw materials are Chinese major potential demand from Peru. 101 Peru – China Free Trade Agreement Joint Feasibility Study Chart 3.7 Chinese Import demand from Peru Peru A. Introduction of Main Indexes This section presents an analysis based on the calculation and comparison of trade indexes in order to evaluate the characteristics of the actual and potential trade flows between Peru and China, as well as the complementarity between their export supply and import demand. For this analysis, the Revealed Comparative Advantages Index (RCA) and the Relative Purchase Capacity Index (RPC) are calculated for both partners, as well as the Relative Importance Index (RI) and Trade Specific Coefficient (TSC), whose formulas are explained in the table below: 102 Peru – China Free Trade Agreement Joint Feasibility Study Trade Indexes Commercial Index Revealed Comparative Advantages (RCA) Relative Purchase Capacity (RPC) Relative Importance of Exports (RIX) Relative Importance of Imports (RIM) Trade Specific Coefficient (TSC) Formula Description (Xih/Xi)/(Wh/W) Compares the importance of a specific sector or good within the total exports of a country, in relation to the weight of such sector or good in global trade; where the numerator represents the share of good h in the exports of country i, and the denominator indicates the contribution of good h in global trade. Allows to identify the sectors where the countries possess a disadvantageous position in global trade; where the numerator (Mih/Mi)/(Wh/W) represents the share of good h in the imports of country i, and the denominator indicates the contribution of good h in global trade. (Xijh/Xih)/(Xij/Xi) Compares the importance of a specific sector or good h within the exports of country i to country j, in relation to the weight of the exports from country i to country j in the total exports of country i. Compares the importance of a specific sector or good h within the (Mijh/Mih)/(Mij/Mi) imports of country i from country j, in relation to the weight of the imports of country i from country j in the total imports of country i. (Xih-Mih)/(Xih+Mih) Describes if country i is a net exporter or net importer of good h. Source: "Estudio sobre las Oportunidades y Sensibilidades de una Potencial Negociación Comercial entre Perú y China" and MINCETU Elaboration: MINCETUR/VMCE/OGEE If one of the parties shows comparative advantages on a specific subheading76, while the other has a high RPC on the same product, then it could be said that the relationship is one of complementarity, as the first party is efficient supplying the product that the latter requires. In the same way, if the RIX or RIM is higher than 1 for a specific product, we can say that such product is, on average, relatively more important than the rest within the trade flows between Peru and China, which serves as an indicator to determine the priorities for a potential negotiation between both parties. Additionally, to give more emphasis to the trade between Peru and China, regional RCA and 77 RPC indexes have been calculated instead of regular ones . In such sense, in the case of the indexes calculated for Peru, instead of Peruvian global trade, we have considered as the total sample the exports or imports that took place between Peru and the Asian Region78. For China, on the other side, the indexes have been calculated taking into account only the trade with Latin America79. Therefore, the new formulas would be as follows: 76 If the RCA is higher than 1, then the country possesses comparative advantages at a world level for good h, as it represents a higher percentage in country’s i exports than in global trade. The same applies for the RPC index. 77 RRCA and RRPC indexes were calculated for the 2002-2005 period, as there is no available data for total global trade for year 2006. RIX and RIM indexes were calculated for year 2006. 78 The following economies are considered as part of the Asian region: China, Chinese Taipei, Hong Kong, India, Indonesia, Japan, Korea, Malaysia, Philippines, Singapore and Thailand. 79 The following economies are considered as part of Latin America: Argentina, Bolivia, Brazil, Chile, Colombia, Costa Rica, Dominican Republic, Ecuador, El Salvador, Guatemala, Honduras, México, Nicaragua, Panama, Paraguay, Peru, Uruguay and Venezuela. 103 Peru – China Free Trade Agreement Joint Feasibility Study Regional RCA and RPC Indexes Commercial Index Regional RCA Regional RPC Formula Description Compares the importance of a specific sector or good within the (Xirh/Xir)/(Mrh/Mr) exports of country i to region r, in relation to the weight of such sector or good within the total imports of region r. Compares the importance of a specific sector or good within the (Mirh/Mir)/(Xrh/Xr) imports of country i from region r, in relation to the weight of such sector or good within the total exports of region r. Elaboration: MINCETUR/VMCE/OGEE Regional indexes reflect in a more precise manner the complementarity relationships that exist between both parties, as it shows in a more realistic way the actual and potential trade that would benefit from a FTA between Peru and China. If we considered global trade instead, the results would be influenced by the intrinsic trade relations between China and its mayor trading partners, as well as the ones between Peru and Latin American countries. For the analysis, the only products considered were the ones that complied with the next conditions: a) For Peruvian exports: - show average trade flows higher than US$ 10,000, for the 2002-2006 period, with the Asian Region, or show trade flows higher than US$ 20,000, for year 2006, with the Asian Region. b) For Peruvian imports: - show average trade flows higher than US$ 100,000, for the 2002-2006 period, with the Asian Region, and maintain an average MFN applied tariff higher than 0%. Under such conditions, the analysis was done on the following sample: Sample of Products included in the Complementarity Analysis Peruvian Exports Sample # of Subheadings Trade Peru - World (% 2002-2006 avge.) Trade Peru - Asian Region (% 2002-2006 avge.) Peruvian Imports Sample # of Subheadings Trade Peru - World (% 2002-2006 avge.) Trade Peru - Asian Region (% 2002-2006 avge.) Source: SUNAT and MINCETUR Elaboration: MINCETUR/VMCE/OGEE Peruvian Exports with 2002-2006 average > 10,000 or 2006 > US$ 20,000 386 18.87 99.96 Peruvian Imports with 2002-2006 average > 10,000 or 2006 > US$ 20,000 2,634 19.68 99.85 In such line of thought, tables that reflect the complementarity between Peru and China for each chapter of the Harmonized System were elaborated. In such way, they would serve as a guide that appears as an easy way to identify such products in which each country has special interests, rather as an exporting good or for importing purposes. Additionally, graphics were built showing, at a 6 digit level of the Harmonized System, the potential complementarity and relative importance of trade flows between Peru and China, from the exporting perspective as well as the importing one. These graphics consist of a Cartesian coordinated system with 4 quadrants (sections) that relate both trade indexes, and are intended to identify the exporting and importing opportunities that are being taken into 104 Peru – China Free Trade Agreement Joint Feasibility Study account and the ones that not, as well as the products that may be sensitive to the commercial openness brought by a potential FTA. B. Peruvian Exporting Perspective - Complementarity between the Peruvian Export Supply and the Chinese Demand This first part of the analysis is based on 386 products that Peru exported to the Asian Region for average values over US$ 10,000, for the 2002-2006 period, or values over US$ 20,000 in 2006. These products represent an exported total of US$ 2,657 million and cover almost all trade with such region. For this sample of products, a Complementarity Table was built at a 6 digit level of the Harmonized System, and shows the particular relationships for each product between Peru and China. When a subheading exported by Peru has an Regional RCA (RRCA) higher than 1, while China has an Regional RPC (RRPC) higher than 1 in the same subheading, then it could be said that they maintain a complementary relationship (subheadings with gray background in the middle of the table) for such product. In the case that Peru keeps comparative advantages in a specific subheading, but China does not maintain a significant relative purchase capacity, such products are indicated on the left side of the table. On the contrary, if Peru does not show comparative advantages in a subheading in which China has a high RRPC, such subheading is indicated on the right side of the table. Complementarity Table between the Peruvian Export Supply and the Chinese Demand CHA RRCA PERU 030110 030374 030490 030759 051199 060499 070920 080122 080520 090111 100590 110620 120991 130190 140410 150410 160415 190190 200290 210390 220210 230800 030199 030375 030619 030791 250610 253090 26 250200 252890 261610 28 281700 282741 29 30 32 293100 300490 320300 03 05 06 07 08 09 10 11 12 13 14 15 16 19 20 21 22 23 24 25 RRPC CHINA CHA 030371 030420 030729 071290 080290 080610 090300 100890 110630 120999 130219 071333 080300 081190 090420 150420 160419 190219 200570 151590 220290 220820 30270 030510 030741 030799 051191 071339 080450 030376 030520 030749 030380 030559 030751 030379 03 081110 05 06 07 08 071490 121190 130239 121220 151610 160590 190590 200590 200899 200939 200980 230120 240120 251690 260300 320500 283324 284020 260700 260900 260800 261390 280450 280490 260111 260200 260112 261710 281000 09 10 11 12 13 14 15 16 19 20 21 22 23 24 25 26 28 29 30 32 320290 105 Peru – China Free Trade Agreement Joint Feasibility Study 33 35 38 39 41 330113 350510 380820 390190 410510 42 43 44 49 50 51 420222 390740 411390 390760 410120 410210 55 58 441214 490199 500790 510219 510810 511119 520512 520532 520710 550961 581091 61 610120 610210 610230 610332 610343 610442 610452 610510 610610 610711 610910 610990 611011 611019 611020 611030 611420 611430 620111 620211 620331 620431 620452 620630 63 630120 630790 65 650590 68 680221 680229 680291 69 691390 70 700721 71 710420 710490 710691 72 720410 720430 720441 73 732510 74 740811 740821 740911 740919 741121 741300 76 760519 761490 78 780110 79 790111 790112 790390 81 810790 811292 82 820719 84 840212 841391 841440 842940 843880 844190 847490 847710 848030 85 850212 852540 90 901812 94 940180 95 950210 950341 96 960200 960820 Prepared by: MINCETUR/VMCE/OGEE 620342 621142 52 62 440920 510710 510910 511219 520522 520543 520790 551020 510720 510990 511290 520523 520544 520829 510320 510820 440729 410190 410419 391590 410411 410441 440799 430219 440890 510539 511190 510111 510129 510529 520100 520300 520527 520547 520849 550130 550630 42 43 44 49 50 51 52 55 58 61 62 680299 681290 711719 711790 740120 740321 740200 740710 740311 740829 811010 780200 790120 811020 790500 842010 845811 848490 550330 33 35 38 39 41 842230 846693 845699 710310 720449 710399 721012 740322 740400 740939 760200 810720 844630 844720 960630 The Peruvian exports to the Asian Region, with coincidences between Peru’s RRCA and China’s RRPC from Latin America, reached an average value of over US$ 2,253 million, for the 2002-2006 period, with represents 84.8% of the total exports to this region. This group is composed by 39 subheadings, distributed among 15 chapters of the Harmonized System. The most representative chapters are 03 (Fish and crustaceans, mollusks and other aquatic invertebrates), 23 (Residues and waste from the food industries; prepared animal feed), 26 (Ores, slag and ash) and 74 (Copper and articles thereof), which are mostly primary goods of manufactures based on natural resources. 106 63 65 68 69 70 71 72 73 74 76 78 79 81 82 84 85 90 94 95 96 Peru – China Free Trade Agreement Joint Feasibility Study In terms of exporting values, subheading 260300 (Copper ores and concentrates) appears in first place, with exports over US$ 732 million. Likewise, other products that stand out are the subheadings 230120 (Flours, meals and pellets, of fish or of crustaceans, mollusks or other aquatic invertebrates, unfit for human consumption), 740311 (Cathodes and sections of cathodes of refined copper), 260800 (Zinc ores and concentrates) and 260700 (Lead ores and concentrates). Some of the main subheadings in which Peru displays high comparative advantages towards the Asian market, but yet China’s RRPC from Latin America is still not significant are: 710691 (Unwrought silver), 790111 (Zinc, not alloyed, >=99.99% pure), 090111 (Coffee, not roasted, not decaffeinated), 150420 (Fats and oils and their fractions, of fish, other than liver oils, whether or not refined, but not chemically modified), 080610 (Grapes, fresh) and 320300 (Coloring matter of vegetable or animal origin, whether or not chemically defined). These products present themselves as new opportunities to be exploited in the Chinese market, as they are already being exported significantly to the region. On the other hand, there are products in which China has a high relative purchase capacity from Latin America, but Peru has not developed high RRCA towards the Asian Region yet. Some of these cases are the subheadings 740400 (Copper waste and scrap), 440799 (Other wood sawn or chipped lengthwise, sliced or peeled, whether or not planed, sanded or endjointed, of a thickness exceeding 6 mm), 550130 (Synthetic filament tow, acrylic or modacrylic) and 510529 (Wool tops and combed wool). These are opportunities that Peruvian exporters should take advantage of, as there is actually a high demand for these goods in the Chinese market that is being attended by other Latin American countries, which may even have less of the conditions that Peru has for exporting them. - Peruvian Exportable Supply to China The following graphic shows, in a general way, the characteristics of the Peruvian exportable supply to China for the 386 products of the analyzed sample. Quadrant 1 (upper right), which includes 25 subheadings, is composed by those products in which Peru maintains significant comparative advantages in the Asian market and, besides, they present a high relative importance among the products exported to China. In this sense, they are products for which a preferential access to China should be mainly sought, especially for the 14 products in which this country presents a RRPC from Latin America greater that one and therefore, maintain a relation of complementarity with Peru. Some of the products located in Quadrant 1 that present a relation of complementarity with China are: Copper ores and concentrates (260300), Flours, meals and pellets, of fish or of crustaceans, mollusks or other aquatic invertebrates, unfit for human consumption (230120), Lead ores and concentrates (260700), Other molybdenum ores and concentrates (261390), Other cuttle fish and squid (030749), Mollusks and other aquatic invertebrates, prepared or preserved (160590), Non-coniferous wood continuously shaped along any of its edges, ends or faces, whether or not planed, sanded or end-jointed (440920) and Other fine animal hair, carded or combed (510539). Quadrant 2 (upper left) corresponds to those products with a high relative importance for Peru in the Chinese market, despite not having a significant comparative advantage towards the Asian Region. They are products that, in many of cases, already have found a market niche, reason by which Peru should sought to consolidate their free access to China. Some outstanding products, because of the high purchase capacity that China presents from Latin America are: Iron ores and concentrates, agglomerated and non-agglomerated (260111 and 260112), Copper waste and scrap (740400), Aluminum waste and scrap (760200), Other tropical wood, sawn or chipped lengthwise, sliced or peeled, whether or not planed, sanded or end-jointed, of a thickness exceeding 6 mm (440729) and Seaweeds and other algae, fresh, chilled, frozen or dried, whether or not ground (121220) Quadrant 3 (lower left) includes 133 subheadings and is comprised by products with low RRCA and low to RIX for Peru, for which its priority would be lesser than that of the ones 107 Peru – China Free Trade Agreement Joint Feasibility Study mentioned previously. Nevertheless, in 29 of them, China shows a high relative purchase capacity from Latin America, which indicates that such products could be exploited to generate greater potential trade with this country. Among those products we have Other wood sawn or chipped lengthwise, sliced or peeled, whether or not planed, sanded or end-jointed, of a thickness exceeding 6 mm (440799), Synthetic filament tow, acrylic or modacrylic (550130), Wool tops and combed wool (510529), Oxides of boron; boric acids (281000), Other fish, frozen (030379) and Cotton, not carded or combed (520100) Finally, Quadrant 4 (lower right) corresponds to those products that, in spite of presenting considerable comparative advantages towards the Asian market for Peru, do not present a high relative importance in Peru’s trade flows towards China. Then it can be said that an opportunity exists for these products’ exports to China to grow, especially for those 25 in which Peru presents a complementary relationship with this country. Some of these stand out products are Cathodes and sections of cathodes of refined copper (740311), Zinc ores and concentrates (260800), Unrefined copper; copper anodes for electrolytic refining (740200), Other mollusks and aquatic invertebrates, including flours, meals and pellets, fit for human consumption (030799), Other fish, dried, whether or not salted, but not smoked (030559), Combed yarn of fine animal hair, not put up for retail sale (510820) and Inorganic tanning substances; tanning preparations; enzymatic preparations for pre-tanning (320290). Peruvian Exportable Supply to China Relative Importance > 1 RRPC China < 1 10 subheadings RRCA Peru < 1 s 11 ding ea bh su su bh 13 ea din gs RRPC China < 1 14 subheadings RRCA Peru > 1 RRPC China > 1 su 1 bh 80 ea din gs 29 25 subheadings subheadings su bh 104 ea di ng s RRPC China < 1 RRPC China < 1 Elaboration: MINCETUR/VMCE/OGEE Relative Importance < 1 Among some of the products that Peru already exports to the Asian Region with a significant level of success but does not export to China we have: 108 Peru – China Free Trade Agreement Joint Feasibility Study Potential Peruvian Exports not being Exported yet to China HS Description Peru Exports to Asian Region (Avge. 02-06) 030371 030490 Sardines, sardinella, brisling or sprats, frozen Other fish meat (whether or not minced), fresh, chilled or frozen 030791 Other mollusks and aquatic invertebrates, including flours, meals and pellets, fit for human consumption, live, fresh or chilled Other vegetables, uncooked or cooked by steaming or boiling in water, frozen Onions, dried, whether or not cut or sliced but not further prepared 1,517,502 1,041,494 1,753,884 071290 Other vegetables and mixtures of vegetables, dried, whether or not cut or sliced but not further prepared 212,752 081190 Other fruits and nuts, uncooked or cooked by steaming or boiling in water, frozen, whether or not containing added sugar or other sweetening matter 500,531 200980 Juice of any other single fruit or vegetable, not fortified with vitamins or minerals, unfermented and not containing added spirit 229,104 210390 Other sauces and preparations thereof; mixed condiments and mixed seasonings 313,439 300490 Other medicaments consisting of mixed or unmixed products for therapeutic or prophylactic uses, put up in measured doses or for retail sale 308,054 440799 Other wood sawn or chipped lengthwise, sliced or peeled, whether or not planed, sanded or end-jointed, of a thickness exceeding 6 mm Printed books, brochures, leaflets and similar printed matter, nes Cotton, not carded or combed 2,346,601 662,118 601,276 Combed cabled cotton yarn, with >=85% cotton, nprs, >94mn but <=120mn per single yarn Combed cabled cotton yarn, with >=85% cotton, nprs, >120mn per single yarn Men's or boys' shirts of cotton, knitted or crocheted 1,028,744 1,917,654 1,751,438 071080 071220 490199 520100 520547 520548 610510 Other sweaters, pullovers, sweatshirts, waistcoats (vests) and similar articles, knitted or crocheted, of wool or fine animal hair 700721 Laminated safety glass for vehicles, aircraft, etc 710691 Unwrought silver (incl. silver plated with gold or platinum) 740312 Wire-bars of refined copper 740710 Bars, rods and profiles of refined copper 740811 Wire of refined copper, maximum cross-sectional dimension >6mm 740919 Plates, sheets and strip, of refined copper, uncoiled, >0.15mm thick 810600 Bismuth and articles thereof (incl. waste and scrap) 870410 Dumpers for off-highway use Source: SUNAT Prepared by: MINCETUR/VMCE/OGEE 611019 521,087 607,771 1,046,685 244,240 64,857,791 2,573,651 2,583,560 754,172 5,144,530 1,406,900 524,926 C. Peruvian Importing Perspective - Complementarity between the Peruvian Import Demand and the Chinese Supply Following the same logic used for the exporting perspective, the analysis of current and potential Peruvian imports originating from China is based on a sample of 789 subheadings, for which Peru has registered average importing totals over US$ 100,000 from the Asian Region, for the period 2002-2006. Additionally, they are products for which Peru displays a MFN applied tariff different from 0%. These products add a total imported average of more than US$ 1,114 million, which represent 52.5% of the total imports from this region. With regards to the individual subheading analysis, the methodology is similar to the one applied for the exports. If Peru presents a RRPC over 1 in an imported subheading, while China has a RRCA greater than 1, then it can be affirmed that a complementary relationship exists between them (gray subheadings in the middle of the graphic). When Peru maintains a RRPC greater than 1 in a subheading, but their counterpart does not present significant 109 Peru – China Free Trade Agreement Joint Feasibility Study comparative advantages, such products will be indicated on the left side of the graph. Otherwise, the subheading will be displayed on the right side of the graph. After analyzing the 789-subheading sample, we obtained that coincidences between the Peruvian RRPC from the Asian market and the Chinese RRCA towards Latin America exist in 17.4% of the imported total, which represents a total value of US$ 369 million. This value is composed by 171 products and is distributed in 38 chapters of the Harmonized System. In addition, clusters of subheadings displaying complementarity can be appreciated in the following chapters of the Harmonized System: 55 (Man-made staple fibers), 61 (Articles of apparel and clothing accessories, knitted or crocheted), 62 (Articles of apparel and clothing accessories, not knitted or crocheted), 85 (Electrical machinery and equipment and parts thereof; sound recorders and reproducers, television image and sound recorders and reproducers, and parts and accessories of such articles) and 96 (Miscellaneous manufactured articles); which include manufactures of different levels of technology. Complementarity Table between the Peruvian Import Supply and the Chinese Supply CHA RRPC PERU 03 030375 08 080111 10 100630 15 151550 151620 17 170230 170290 18 180500 20 200820 21 210390 210690 24 27 271019 28 284910 291570 291732 29 291739 291890 293339 293391 300220 300290 30 300432 300439 320649 320820 32 321519 321590 33 330510 330610 340120 340211 34 340290 340391 35 350300 36 360500 370110 370120 37 370254 370320 380991 381121 38 381600 381700 390690 390890 391739 391740 39 392020 392043 392113 392119 392390 392590 400811 400821 400931 400941 40 401290 401410 401699 41 411410 42 030379 151790 170410 210310 281511 290420 291734 292242 282810 293010 283630 283919 293090 300410 300440 321511 300420 300490 RRCA CHINA CHA 03 08 10 15 17 18 20 200310 21 24 240220 27 270400 28 283010 290349 29 291719 292090 293100 293399 300590 30 320300 330420 340600 330741 340700 340220 340540 32 33 34 35 36 370220 370790 381230 382490 391721 391910 392049 392190 392630 400911 400942 401519 370244 370255 37 38 391731 391990 392112 392310 391732 392010 400921 401110 401693 392321 392410 392530 391810 392210 401120 401490 401590 401212 401511 401694 392329 392490 392610 392620 392640 401691 401692 39 40 41 420299 420310 420212 420229 420219 420231 420221 420232 420222 420239 42 110 Peru – China Free Trade Agreement Joint Feasibility Study 43 44 46 48 49 52 441033 441400 440810 460290 480255 480830 481029 481190 481890 490199 520100 520522 520524 480256 480920 481092 481620 481930 490900 520512 520523 520526 480591 481013 481141 481630 482020 491199 520513 540110 540243 540822 550921 550953 551422 560392 560600 580620 580710 590320 600410 600633 611420 540241 540249 540242 540262 420292 420329 420330 441900 442010 442190 460210 481940 482010 482050 481019 481151 481840 482110 55 56 521142 58 59 60 620311 620444 621220 621510 630510 64 69 70 71 72 580136 610130 610721 611090 611430 580122 580421 590210 600532 600634 610230 611019 611030 611693 620112 620211 620213 620332 620433 620630 621111 621440 630140 630251 630492 640391 640510 620113 620212 620323 620333 620520 620721 621430 621520 630240 630291 630612 640299 640590 590700 63 65 66 67 68 540742 540753 540773 550922 551321 551512 560394 610120 611011 611020 61 62 540233 540744 540769 550810 551312 551511 560811 550951 551011 560393 560750 580632 580790 590390 520831 520932 521031 520832 520939 521143 540752 540754 540784 551211 551412 551614 551311 551421 551622 680690 720916 720917 520839 520942 521149 530929 540761 540792 540793 551219 551341 551623 581091 581092 590310 600632 701090 700510 701339 721041 53 54 55 610333 610462 610620 620192 620312 620432 620453 620469 620690 640219 640399 610342 610463 610821 610832 611120 611241 620193 620342 620442 620459 620530 620822 620930 630222 630253 630533 640220 640411 690210 701329 701810 711719 58 59 610343 610510 610822 610910 611130 611593 620292 620343 620443 620462 620590 620892 621133 621210 630231 630260 630622 640291 640419 640610 650610 660191 670210 600110 600192 610433 610520 610831 610990 611212 611710 620293 620423 620452 620463 620640 620920 621143 621710 630232 630391 630790 640319 640520 640620 650699 660199 670290 681290 691110 691200 700991 701400 711420 52 56 650590 660110 680510 690890 691090 700711 701990 48 49 520822 520842 521021 520821 520922 520959 53 54 43 44 46 702000 690220 691310 691010 691390 700992 701399 711790 721720 60 61 62 63 64 65 66 67 68 69 70 71 72 111 Peru – China Free Trade Agreement Joint Feasibility Study 721049 721640 730630 730820 731822 732020 721070 721633 730650 731816 731824 732591 730690 731821 732010 761490 82 760820 761610 820140 820890 830230 830990 830810 83 841350 841790 841919 842139 843390 848130 848360 848590 850422 850710 851140 851180 851190 852729 852821 853720 854430 870321 870331 870891 900211 902890 841381 841810 841939 842199 843810 848310 848390 73 74 76 84 85 87 90 830130 830520 841391 841821 842123 843139 844720 848330 848410 841460 841830 842131 843141 847490 848340 848490 850610 851650 852110 852719 852739 852813 853922 854590 870323 870333 730890 731814 732393 732399 900140 92 940310 940390 94 950430 95 960610 960629 960621 960810 961100 820551 821193 821000 821300 830110 830250 830210 830300 821110 821420 821520 830242 830510 830630 841829 842410 845011 847982 848350 848510 850110 850720 850910 851610 851640 851890 852190 852732 850940 851679 852712 852731 852812 852830 854420 850211 850730 850980 851629 851660 851999 852290 853661 853931 871120 900150 900640 901831 910219 910519 920590 920994 940150 940370 940599 950100 950330 950360 950440 950662 960711 960820 961210 961590 731700 731819 732394 732490 741220 761519 830140 830590 870324 870829 910211 910390 920510 920710 91 96 730723 731812 732113 731431 731581 741910 732392 760421 760429 850423 851110 851150 870322 870332 871130 901832 731290 731441 731811 732391 732410 900490 900653 902830 910299 910529 960720 960910 961511 961620 910212 910310 850650 850740 850990 851631 851671 852033 852713 853921 853932 870831 871310 900311 900410 900659 910229 910511 920600 940130 940179 940360 940510 940161 940180 940380 940520 940169 940320 940430 940530 950210 950350 950410 950629 950320 950370 950490 950651 950341 950380 950510 950669 950691 960329 960390 960990 961380 960321 960340 960840 961320 821191 821510 821599 830249 830629 830890 841451 841459 841869 841911 845012 845019 845210 848180 850680 850780 851310 851632 851672 852090 852721 853929 853939 871200 871500 871680 900319 900651 902511 910291 910521 920790 920999 940171 940330 940490 940540 940550 950349 950390 950590 950670 950699 960330 960719 961310 961519 73 74 76 82 83 84 85 87 90 91 92 94 95 96 Prepared by: MINCETUR/VMCE/OGEE 112 Peru – China Free Trade Agreement Joint Feasibility Study Among the complementary subheadings presented in the table, some of the most notable for their import value are: 852731 (Radio receivers with sound recording/reproducing apparatus), 871120 (Motorcycles with reciprocating engine of capacity 50-250cc), 852812 (Color TV receivers), 401120 (New pneumatic tires, of rubber, of a kind used on buses or trucks) and 845011 (Fully-automatic washing machines, capacity=<10kg). None of these goods is produced in Peru stating the complementary relationship existing between both countries. Nevertheless, the sample also includes products which are sensitive to be imported to Peru, since opening their trade may result on a negative impact to the national industry. For these products, it is recommended to negotiate longer liberalization periods or alternatives to liberalization in order to allow the local producers to generate advantages and greater competitiveness before opening trade between both parties. Some examples are the Textiles and Apparel and Footwear sectors, which raise sensibilities due to their labor intensive nature. In this sense, and using the Peruvian customs tariff as a reference of the goods with local production and with sensibility to Chinese imports, the following table presents the products that show the greatest sensibilities, aside from the sectors previously mentioned: Sensitive Products from Imports originated in China Chapter Description Examples of Sensitive Products 17 Sugars and sugar confectionery Sugar confectionery (including white chocolate), not containing cocoa 20 Preparations of vegetables, fruit, nuts or other parts of plants Mushrooms of the genus Agaricus, prepared or preserved; Pineapples, otherwise prepared or preserved 21 Miscellaneous edible preparations Soy sauce; Other sauces and preparations thereof; mixed condiments and mixed seasonings 29 Organic chemicals Dithiocarbonates (xanthates) 30 Pharmaceutical products Medicaments consisting of mixed or unmixed products for therapeutic or prophylactic uses, put up in measured doses or in forms or packings for retail sale 32 Tanning or dyeing extracts; tannins and their derivatives; dyes, pigments and other coloring matter; paints and varnishes; putty and other mastics; inks Paints and inks 33 Essential oils and resinoids; perfumery, cosmetic or toilet preparations Beauty or make-up preparations 35 Albuminoidal substances; modified starches; glues; enzymes Prepared glues and other prepared adhesives 39 50 - 63 64 Plastics and articles thereof Textiles and apparel Footwear, gaiters and the like; parts of such articles Articles of plastic Articles of apparel and clothing accessories Footwear 70 Glass and glassware Bent, edge-worked, engraved, drilled, enameled or otherwise worked glass; Safety glass, consisting of toughened or laminated glass 71 Natural or cultured pearls, precious or semi-precious stones, precious metals, metals clad with precious metal Imitation jewelry and articles thereof; imitation jewelry; coin 72 - 73 83 Iron and steel and articles thereof Miscellaneous articles of base metal Articles of steel Locks 84 Nuclear reactors, boilers, machinery and mechanical appliances; parts thereof Pumps; fans; freezers; water heaters 85 Electrical machinery and equipment and parts thereof; sound recorders and reproducers, television image and sound recorders and reproducers, and parts and accessories of such articles Generators 113 Peru – China Free Trade Agreement Joint Feasibility Study 94 Furniture; bedding, mattresses, mattress supports, cushions and similar stuffed furnishings; lamps and lighting fittings, not elsewhere specified or included; illuminated sign illuminated nameplates and the like; prefabricated buildings 96 Miscellaneous manufactured articles Prepared by: MINCETUR/VMCE/OGEE - Seats Buttons; pens Peruvian Import Demand from China The Quadrant Analysis for the importing perspective is focused in the comparative advantages that China possesses towards Latin America, set against the Peruvian relative purchase capacity from the Asian market; as well as the relative importance of China as a supplier of a specific product. Quadrant 1 (upper right) includes the products in which Peru presents a high RRPC and, at the same time, considers China a relatively important supplier. China displays comparative advantages towards Latin America in 157 of these subheadings, some of which could start to be imported free of tariffs once a trade agreement is signed. Some important products, due to their relative importance and complementarity with the Peruvian demand are: Radio receivers (852731), Motorcycles with reciprocating engine of capacity 50-250cc (871120), Color TV receivers (852812), New pneumatic tires of a kind used on buses or trucks (401120), Microwave ovens (851650), among others. Quadrant 2 (upper left) covers those products in which China is already a relatively important supplier, in spite of the fact that the Peruvian RRPC from the Asian Region is not high. Some of these cases may be of inputs or intermediate materials not produced domestically, for which to achieve free trade in convenient. Some of the stand-out products in this Quadrant, due to the Chinese advantages in Latin America are: Video recording or reproducing apparatus (852190), Toys (950390), Other appliances such as taps, cocks and other valves (848180) and Discharge lamps (853931). In Quadrant 3, we can find the products for which Peru does not perceive China as a relatively important associate yet nor presents a high RRPC from the Asian Region, so they would present a lesser priority than the ones in the other quadrants. Nevertheless, it should not be disregarded that among these products there may be some important inputs not being imported from China or to be required in the future when new productive processes develop. Some notable products in this Quadrant are: Coke and semicoke of coal (270400), Structures and parts of structures of iron or steel (730890) and Mounted brake linings for motor vehicles (870831). Finally, Quadrant 4 includes the subheadings in which Peru presents a high RRPC, but the relative importance of China as the supplier is low or moderate. In this case, Peru could take advantage of an agreement with China to place it as the supplier of the products that Peru requires and/or does not produce to satisfy its internal demand. Some of the main subheadings in this quadrant, because of the complementary relationship with China, are: Tyre cord fabric of high tenacity yarn of nylon or other polyamides (590210), Tyre cord fabric of high tenacity yarn of nylon or other polyamides (551511), Slide fastener parts (960720) and Articles of graphite or other carbon for electrical purposes (854590). 114 Peru – China Free Trade Agreement Joint Feasibility Study Peruvian Import Demand from China Relative Importance > 1 RRCA China < 1 s 81 ding ea bh su su bh 27 ea din gs RRCA China < 1 278 157 subheadings subheadings RRPC Peru < 1 RRPC Peru > 1 RRCA China > 1 su 1 bh 70 ea din gs 20 14 subheadings subheadings su bh 40 ea di ng s RRCA China < 1 RRCA China < 1 Elaboration: MINCETUR/VMCE/OGEE Relative Importance < 1 D. Results of TSC for Peru The TSC index was calculated for Peru’s global trade for the average trade flows between 2002 and 2006. Among the products that were traded during that period, 924 showed a TSC index higher than 0, while 4124 presented a TSC index lower than 0. The products with a positive index are mainly agricultural, mineral and textile and apparel goods, notwithstanding the presence of some products with a higher value added. In the other hand, most products with a TSC lower than 0 are manufactures of high or medium technology, in which Peru does not possess comparative advantages. 115 Peru – China Free Trade Agreement Joint Feasibility Study 4 IMPACTS OF TRADE AND INVESTMENT LIBERALIZATION This chapter evaluates the economic impact of a possible Free Trade Agreement between Peru and China by using two Computable General Equilibrium (CGE) Models80 and two Partial Equilibrium Models: for Peru, the GTAP and the SMART model, and for China the IMMPA and the PE model. The modeling results strongly support the propositions advanced throughout this Joint Study; i.e. that both Peru and China will gain from a Free Trade Agreement. A Free Trade Agreement between Peru and China would involve the elimination of tariffs on substantially all trade between these countries and would ensure that non-tariff measures do not act as obstacles to bilateral trade. Particularly, a comprehensive FTA would mostly contribute to increase bilateral trade through commonly agreed trade facilitation measures, namely customs procedures, rules of origin, and SPS, which will reduce transaction and administrative costs. In other words, a direct correlation between the size of the gains and the scope and ambition of any FTA outcome can be expected. The analysis of the economic impact of the FTA between Peru and China, developed in the following sections, will focus only in the impact of tariff elimination81, because of the lack of adequate equivalent measures for non-tariff barriers (except in the case of China’s PE model, that also consider the removal of quantitative restrictions) 4.1 Liberalization of Bilateral Trade in Goods 4.1.1 Analysis Based on Computable General Equilibrium Model (CGE) China A. Model Introduction In the modeling process, we have made reference to the IMMPA (Integrated Macroeconomic Model for Poverty Analysis) that the World Bank built for Brazil to do poverty analysis, and have made major changes to such model according to China’s circumstances. There are seven blocks in this model: production block, income and distribution block, ultimate domestic demand block, trade block, labor market block, private capital and macro closure block, and price and GDP definition block. CGE model is based on the input and output data, and China’s National Statistics Bureau prepared its input-output statement once every five year, so we use as the basic data the latest input-output statement of 2002. B. Analysis of Impacts on Macro Economy We make a general assumption here: under the simulated circumstance, both countries cut down their average tariff rates by 100%. The result shows: The actual GDP will grow by 0.04%82. Due to the increase of 0.06% in price, the nominal GDP goes up by 0.1%. Resident consumption will grow at a rate of 0.16%; investment will grow at a rate of 0.08%; export will grow at 0.56%, with a rise after down period while import will grow at 1.08%, with a decline after a rise. The labor demand will rise by 0.06%. The fiscal revenue and the disposable incomes of rural residents and urban residents will increase a little. 80 A CGE model is an abstraction that is complex enough to capture the essential features of an economic situation, yet simple enough to be tractable. In other worlds, it is a computable representation of a country or a group of countries that describes artificially the consumers, producers, government and rest of the world. The equilibrium of the model must keep exact concordance with the base year data; and after a parameter modification, it has to be readjusted in order to find the new equilibrium. 81 We consider as tariffs all ad-valorem rates, specific rates, and mix rates applied by both countries. 82 The outcome of GDP is the average value from 2006 to 2015, and others in this sector have the same meaning. 116 Peru – China Free Trade Agreement Joint Feasibility Study Table 4.1 Macro-impact of China-Peru FTA by Dynamic CGE Model Unit: % 2009 2012 2015 GDP 0.038 0.038 0.038 Consumption 0.162 0.162 0.162 Investment 0.088 0.086 0.082 Export 0.558 0.57 0.586 Import 1.074 1.076 1.068 Fiscal Revenue 0.28 0.276 0.27 Labor Demand 0.048 0.048 0.042 Price level 0.06 0.06 0.058 Rural 0.256 0.252 0.126 Urban 0.32 0.322 0.161 Disposable Income N.B. The outcomes in the table are all about real item and the percentage change of simulation scenario against base scenario. C. Impacts on Foreign Trade - Exports Except for fishery and forestry, China-Peru FTA will promote agricultural export from China, with the exports up by 0.84% in grain growing sector and by 0.32% in stock breeding sector. But such effects will decline gradually. Forestry exports will remain relatively stable, down by 0.72%, and fishery exports will drop by 1.64%. China’s export of food manufacturing and tobacco processing, and textiles will increase by 0.82% and 0.42% respectively. Export of electronic and communication equipment manufacturing, and transportation equipment manufacturing will rise by 1.06% and 0.92% respectively. China’s mineral exports will suffer a certain adverse impact. Exports in ferrous metal mining and dressing, and non-ferrous metal mining and dressing will drop by 0.28% and 0.82% respectively. - Imports Import of Mining and agriculture products will increase. Imports in ferrous metal mining and dressing, non-ferrous metal mining and dressing, and oil and gas exploitation will increase by 1.32%, 1.12%, 0.58% and 0.9% respectively. China’s import of fishery and forestry products will increase by 1.04% and 0.24% respectively. Additionally, the imports in papermaking, oil processing, metalwork and metal smelting will show a modest increase. D. Impacts on Major Industries - Agricultural, Forestry and Fishery Products China’s exports in forestry and fishery will decrease, and its imports will increase as Peru has certain advantages over China in these two sectors. Consequently the added value of the two sectors will be influenced adversely, with the added value of forestry down by 0.28% (relatively stable) and that of fishery down by 0.76%. That adverse effect will mount up when time goes on. Affected by the reduced added value, labor demand in forestry will drop by 0.15%, and that in fishery will drop by 0.03%. - Mineral Resources and Energy 117 Peru – China Free Trade Agreement Joint Feasibility Study In mining sector, the overall cost of mining sector will drop, and its added value will thus increase due to the decline in price of imported resources as a result of reduced tariff rates. The added value of ferrous metal mining and dressing, non-ferrous metal mining and dressing, and oil and gas exploitation will increase by 0.64%, 0.36% and 0.38% respectively, indicating a rise after a decline. The labor demand in these three sectors climbs up by 0.15%, 0.06% and 0.03% respectively. Oil and gas exploitation remains stable in the growth of labor demand. - Textile, Apparel and Footwear According to the results of the simulation scenario, the China-Peru FTA will have only inconsiderable effects in enhancing China’s textiles and garments sector. The added value of textiles will rise by 0.16%, with labor demand up by 0.02%; the added value of garments and other fiber products manufacturing sector will rise by 0.12%, with labor demand up by 0.02%. Therefore, the added value and the labor demand of these two sectors will remain in stable movement. - Petrochemical and Chemical Industries Due to the effect of the decreased tariff rate, the price of imported raw materials of Petrochemical industries will be lower, inducing the decreasing of cost, therefore the added value and labor demand will increase somewhat. But, Peru only has a very limited share in China’s total trade, so the positive influence is relative slender. - Other Industries The added value in the transportation equipment manufacturing sector, the electronic and communication manufacturing sector, metalwork, apparatus and instruments sector, and stationery and office supplies manufacturing sector increases by 0.96%, 0.81%, 0. 5% and 0.32% respectively, each having a movement of rising after a decline; employment in these sectors grows by 0.09%, 0.08%, 0.04% and 0.03% respectively, indicating a stable movement. Peru A. Model Structure A standard version of the GTAP model, developed by Purdue University, will be used for this purpose. This is a static, multi-region and multi-sector model, which assumes perfect competition in all markets and constant returns to scale in all functions of production. It estimates the gains of trade that arise from a more efficient allocation of resources and from the variation in terms of trade. Nevertheless, it does not capture other important effects that Free Trade Agreements have over the economies, like effects on factor accumulation (as labor or capital), as well as dynamic long term effects on total factor productivity. Therefore, two other features to the model were incorporated. First, in order to have a more realistic assumption for developing countries, instead of assuming that all markets operate in perfect competition; wage rigidities in the unskilled labor market were introduced. Second, the possibility to accumulate or not accumulate capital by keeping the real rate of return to capital fixed and letting the stock of capital to grow or to diminish after a policy shock, was added. The quality of the results that are obtained from CGE models will depend on the model specification as well as on the data bases employed. Therefore, in terms of data, the version 6 of the GTAP data base, benchmarked in 2001 was used as starting point. The 87 regions and 57 sectors from the GTAP data base have been regrouped in the regions (11) and sectors (15) listed in the charts below. 118 Peru – China Free Trade Agreement Joint Feasibility Study Then, because of the significant changes that Peru and China had experienced between 2001 and 2006, data on bilateral trade and tariffs was updated to get estimates for 2005 and 2006, using information from a range of sources, principally the Peruvian Customs Agency (SUNAT), the Chinese Customs Office, and the WTO Integrated Data Base. Regions 1 Peru 2 China 3 United States 4 European Union (25) 5 Canada 6 Chile 7 Rest of FTAA 8 Rest of South America 9 Asia 10 Rest of Andean Community 11 Rest of the World Source: GTAP database version 6 Sectors 1 Agriculture 2 Chemical,rubber,plastic products 3 Electric, Non Electric Machinery and Transport Equipment 4 Fishing 5 Flours, meals and pellets of fish 6 Leather products 7 Metal Products 8 Others 9 Petroleum and Mineral Products 10 Textiles 11 Vegetables, fruit, nuts 12 Wearing apparel 13 Wood and Paper products 14 Fats and Oils and their fractions of fish 15 Services Source: GTAP database version 6 Once the data has been updated, two key facts emerge from it. First, tariff rates in Peru on most merchandise imports from China were below 12% in 2006. However, imports of leather products, wearing apparel, textiles and vegetable fruits and nuts were clear exceptions, being subject to much higher protection than other imports. Second, even though China’s average tariff rate to Peruvian imports was around 1%, some of the tariffs applied to agricultural products; vegetables, fruits and nuts; fishing; wearing apparel and others; were higher than 11%. 119 Peru – China Free Trade Agreement Joint Feasibility Study Bilateral Tariffs weighted by imports Sectors 1 Agriculture 2 Chemical,rubber,plastic products 3 Electric, Non Electric Machinery and Transport Equipment 4 Fishing 5 6 Chinesse tariffs Peruvian tariffs 24.01 9.08 8.68 4.36 6.76 4.40 11.40 11.98 Flours, meals and pellets of fish 2.00 12.00 Leather products 7.02 17.45 7 Metal Products 2.90 7.53 8 Others 17.17 11.69 9 Petroleum and Mineral Products 0.14 5.53 10 Textiles 7.03 17.74 11 Vegetables, fruit, nuts 14.54 24.98 12 Wearing apparel 15.90 19.43 13 Wood and Paper products 0.02 11.37 14 Fats and Oils and their fractions of fish Average 12.00 0.00 1.00 7.55 Source: IDB WTO, SUNAT, China Customs B. Scenarios The following two scenarios were evaluated: • • The first one simulates the immediate removal of tariffs in all goods traded between both countries. The second one simulates the elimination of tariffs in all goods imported by China from Peru, and the elimination of tariffs in all goods imported by Peru from China, with the exception of some Peruvian sectors that experienced adverse effects after the replication of the first scenario. C. Macroeconomic Impacts After the simulations, the outcomes suggest that, with the implementation of the Peru-China FTA, real GDP and welfare for both economies would rise above the baseline in both scenarios. Particularly, in the Peruvian case, real GDP and welfare would be at least 0.70% and 0.53% higher, and these results would increase to 0.80% and 0.66% if Peru excludes from the tariff elimination schedule some products as textiles, wearing apparel and leather products. As a result of the GDP increases, the employment rate, the stock of capital and the investment rate would expand above 0.51%, 0.85% and 0.06% correspondingly. In terms of trade flows, the model shows that world trade and bilateral trade would increase. It means that trade creation will exceed trade diversion in both countries, and thus, a positive impact on economic welfare will take place. On the Peruvian side, aggregate exports to the world and to China would increase by at least 1.93% and 5.40%, respectively; and aggregate imports from the world and from China would increase by at least 1.89 and 30.11%. Apparently, Peruvian exports by partner would increase in all cases; while Peruvian imports from China will increase and Peruvian imports from other Peruvian trading partners would decrease. In other words, part of Peruvian imports from the rest of the world would be substituted by Chinese imports. 120 Peru – China Free Trade Agreement Joint Feasibility Study This exercise also suggests that Peru’s trade balance and tariff revenue would worsen in both scenarios. In the first case, due to greater tariff elimination, the assumption of a fixed exchange rate will generate a much faster increase of Peruvian imports over Peruvian exports, and this will produce an slightly increase on the trade balance deficit. Macroeconomic Impacts of Peru-China Free Trade Agreement Macroeconomic Indicators First Scenario Second Scenario 1 Welfare (Equivalent Variation in US$ Mills/GDP) 0.53% 0.66% 2 Available Income per capita 0.60% 0.74% 3 Real GDP (variation%) 0.70% 0.80% 4 Trade Balance (US$ Mill/ GDP) -0.02% -0.01% 5 Imports (var%) 3.09% 1.93% 6 Exports (var%) 3.05% 1.89% 7 Domestic Consumption (var%) 0.08% 0.43% 8 Taxes Revenue (US$ Mill/GDP) -0.30% -0.18% 0.06% 0.14% 10 Employment 9 Investment (US$ Mill/GDP) 0.51% 0.81% 11 Stock of Capital 0.84% 1.04% Source: CGE Simulations D. Sectoral Impacts In this section, the focus will be on the sectoral impact of a FTA between Peru and China. The Peruvian sectors that would win or lose from an FTA will be identified, taking into consideration a full liberalization scenario and a non-full liberalization scenario. In the first scenario, the sectors that would benefit the most are: Fats and oils and their fractions of fish; petroleum and mineral products; fishing; flours, meals and pellets of fish, among others. And, the sectors that would lose the most are: leather products, textiles, wearing apparel, metal products, among others. Particularly, some potential winners as chemical rubber and plastic products, as well as fats and oils and their fractions of fish will increase their total exports between 6.34% and 141.84%, and will considerably expand their exports to China in 78.75% and 174.96%; respectively. On the other hand, some potential losers like leather products, textiles and wearing apparel, would increase their imports from China considerably, while diminishing their imports from other countries, and also withdrawing their local production. In the second scenario, comparing the first outcomes, with the scenario that excludes the liberalization of some products, the model shows that the sectors that would benefit most are the aforementioned, and textiles. By the other side, the sectors that would lose most are metal products; electric non machinery and transport equipment; and others. Particularly some potential winners such as chemical rubber and plastic products, as well as, fats and oils and their fractions of fish will increase their total exports between 4.77% and 139.85% and will considerably expand their export to China in 76.04% and 169.23%. Some special attention in the second scenario deserves the textile sector, whose total exports would increase around 4.04% and their exports to China would expand in 68.15%. On the other hand, some potential losers like metal products; electric, non electric machinery and transport equipment; and others; would increase their imports from China considerably, diminishing their imports from other countries, and also withdrawing their local production. 121 Peru – China Free Trade Agreement Joint Feasibility Study Sectoral Impact on Peruvian Total Production (Var%) Sectors First Scenario Second Scenario 1 Agriculture 0.71% 2 Chemical,rubber,plastic prods 0.94% 1.02% 3 Electric, Non Electric Machinery and Transport Equipment -0.48% -0.52% 4 Fishing 1.55% 2.02% 5 Flours, meals and pellets of fish 1.41% 1.39% 6 Leather products -6.25% 0.82% 7 Metal Products -1.15% -1.09% 8 Others -0.32% -0.04% 9 Petroleum and Mineral Products 1.94% 1.23% 10 Textiles 11 Vegetables, fruit, nuts 12 Wearing apparel -1.18% 0.62% 13 Wood and Paper products 0.22% 0.43% 14 Fats and Oils and their fractions of fish 5.87% 6.02% 15 Services 0.39% 0.74% 0.46% 0.80% Total 0.99% -2.52% 1.38% 0.67% 0.94% Source: CGE Simulations Sectoral Impact on Peruvian Exports (Var%) First Scenario Sectors 1 Agriculture 2 Chemical,rubber,plastic prods 3 Electric, Non Electric Machinery and Transport Equipment 4 Fishing 5 Flours, meals and pellets of fish 6 Leather products 7 Metal Products 8 Others 9 Petroleum and Mineral Products 10 Textiles 11 Vegetables, fruit, nuts 12 Wearing apparel 13 Wood and Paper products 14 Fats and Oils and their fractions of fish 15 Services Total Total Exports 1.80% 6.34% 4.35% 0.53% 3.43% 7.62% 3.95% 2.94% 2.86% 6.13% 0.44% 3.26% 2.51% 141.84% 1.12% 3.05% Exports to China 274.84% 78.75% 75.00% 29.17% 8.51% 79.65% 27.91% 200.00% 3.56% 71.81% 64.29% 212.50% 2.69% 174.96% 1.18% 6.54% Second Scenario Total Exports 0.44% 4.77% 2.87% 0.15% 2.59% 5.64% 3.04% 1.48% 1.63% 4.04% -0.03% 1.56% 1.36% 136.85% 0.39% 1.89% Exports to China 269.18% 76.04% 72.37% 29.17% 7.68% 76.11% 25.58% 180.00% 2.41% 68.15% 63.19% 206.25% 1.53% 169.23% 0.44% 5.40% Source: CGE Simulations 122 Peru – China Free Trade Agreement Joint Feasibility Study Sectoral Impact on Peruvian Imports (Var%) First Scenario Sectors Second Scenario Imports from Imports from Total Imports Total Imports China China 1 Agriculture 2 Chemical,rubber,plastic prods 3 Electric, Non Electric Machinery and Transport Equipment 4 Fishing 5 Flours, meals and pellets of fish 6 Leather products 7 Metal Products 8 Others 9 Petroleum and Mineral Products 10 Textiles 11 Vegetables, fruit, nuts 12 Wearing apparel 13 Wood and Paper products 14 Fats and Oils and their fractions of fish 15 Services Total 0.97% 0.76% 2.35% 1.69% 0.11% 55.16% 4.74% 10.75% 1.46% 24.48% 1.80% 61.12% 1.63% -0.80% 0.03% 3.09% 69.82% 28.80% 29.61% 35.29% 0.00% 98.03% 39.86% 61.65% 58.08% 123.11% 128.99% 116.05% 88.79% 0.00% -0.05% 47.82% 1.64% 1.51% 2.75% 2.30% 0.71% -0.24% 4.97% 11.55% 1.31% 0.38% 2.00% -0.16% 2.35% 0.43% 0.62% 1.93% 71.19% 29.81% 30.16% 35.29% 0.00% -0.27% 40.19% 62.86% 57.96% 0.33% 128.99% -0.18% 90.20% 0.00% 0.57% 30.11% Source: CGE Simulations E. Impacts on Major Industries - Agricultural, Fruit, Forestry and Fishery Products In 2006, Peruvian exports of agricultural products to China reached US$ 1.6 million, representing only 0.17% of Peruvian agricultural exports. Whole hides and skins, and giant maize from Cuzco, represents 86.89% of Peruvian agricultural exports to China. On the other hand, Peruvian exports of vegetables and fruits to China reached US$ 1.9 million, representing only 0.23% of Peruvian vegetables and fruits exports. Fresh grapes, mangoes and mangosteens and other fruits and nuts, uncooked or cooked by steaming or boiling in water (like strawberries, tomatoes) represents 94.78% of Peruvian sectoral exports to China. During these years, Peru has been specializing in high-price growing products, like vegetables and fruits, and is currently the leading country in asparagus and dry red pepper (paprika) exports; products where China’s demand has been augmenting. Therefore, there is a strong potential of growth in both sectors, and Peru should take advantage of their counterseasonal production in some of its products. Peru should also gain from its position in the southern hemisphere, where some of its products, can percolate into the Chinese market a month ahead of its southern hemisphere neighbors. China’s average tariff rate to Peruvian imports is around 24.01% for agricultural products and 14.54% for vegetables, fruits and nuts; and the modelling results suggests that their complete removal would increase Peruvian agricultural exports to China in 69.82% and vegetable and fruits exports to China in 128.99%. However, the full benefits of tariff reductions will be materialized only if there is a significant reduction in non tariff barriers, such as, import quotas, SPS and licenses, as well as clear and transparent customs procedure disciplines. Thereof, the best way of allowing an FTA to reach its full potential, is through ensuring that non-tariff measures do not act as obstacles to bilateral trade. Peruvian exports of woods and paper products to China registered US$ 45.8 million, in 2006, representing 12.9% of Peruvian exports in this industry. But the main of its exports (96.80%) were concentrated in low value-added wood products, like strips and friezes for parquet flooring, not assembled, and other wood sawn or chipped lengthwise, sliced or peeled, whether or not planed, sanded or finger-jointed, of a thickness exceeding 6mm. 123 Peru – China Free Trade Agreement Joint Feasibility Study Peruvian exporters have not been able to place in the Chinese market higher value-added wood products, it seems that Chinese prefer to import un/semi finished wood in order to add value in China. Because of that, ad-valorem tariff faced of by Peruvian wood exports are only around 0.02%, and the estimations obtained with the CGE model, suggest that with the FTA, Peruvian wood exports to China would increase in 2.68%. Perhaps, a deep understanding in trade facilitation processes would contribute to develop joint opportunities in this industry and boost these modest results. Peruvian fishery products could be divided in 3 categories: fishing products, flour meals and pellets of fish, and fats and oils and their fractions. In 2006, their exports to China, represent 12.24%, 37.49% and 5.13% of the Peruvian total exports by each industry (jointly they reached US$ 492 million). Particularly, Peruvian “fishmeal” has an excellent reputation in China, it is considered among the best in the world, and China imported well over US$ 1,143 millions in 2006. Consequently, Peru should take advantage of their well-known reputation in fishery and should penetrate with other fishery products that have significant potential to improve, like: fats and oils and their fractions of fish other than liver oils, clams, other crustaceans, other live fresh or chilled fishes, among others. China’s average tariff rate to Peruvian fishery imports are: 11.40% for fishing products, 2% for flour meals and pellets of fish, and finally 12.00% for fats and oils and their fractions of fish. Taking account that, the model outcomes suggest that, Peruvian exports of fats and oils and their fractions of fish would increase considerably (174.96%), followed by the Peruvian exports of fishing products exports (29.17%) and flour meals and pellets of fish (8.51%). - Mineral Resources and Energy Peru is a mining country and as a result, Peruvian petroleum and mining products are the most important exports to China (almost 75%). In 2006 they reached US$ 1,702 million, representing 9.85% of Peruvian mining exports. The most important products exported to China are: copper ores and concentrates; lead ores and concentrates; petroleum oils and oils obtained from bituminous minerals, crude; molybdenum; tin; zinc; among others. Peru and China share a complementary economic bilateral relationship in this sector and the tariffs faced by Peruvian mining exports are very low (0.14%), but it seems that, the elimination of this apparently un-meaningful tariff would contribute mining exports to grow in 3.56%. In order to improve this result, Peru and China should take advantage from their complementarities and enhance their trade relations in mining sector through the allocation of more investments in this industry, through joint ventures agreements, among others. - Textiles, Wearing apparel and Leather Products (including Footwear) In 2006, bilateral trade in textiles, wearing apparel and leather products, records a clear trade surplus in favor of China of US$ 222 million. China is one of the main suppliers of these products, representing 36.81% of total Peruvian imports in those sectors. The most important products imported from China are: other dyed knitted or crocheted fabrics of synthetic fibers, denim, other footwear covering the uncle, other footwear covering the uncle but not the knee, and trousers, bib and brace overalls, breeches and shorts for women or girls made of cotton, among others. The textile and wearing apparel sectors, as well as the leather industry, constitute some of the most important industries in Peru and have a great repercussion in the economy. Their performance based on the possession of excellent raw material, expertise and experience, places them like potential sectors with high expectations for the development of the country. In the last years, those industries have experienced a remarkable growth in their production mostly in the non-domestic side; their extraordinary performance has led them in the top of 124 Peru – China Free Trade Agreement Joint Feasibility Study the ranking of non-traditional Peruvian exports. Also, these industries are labor-intensive and occupy directly more than 400,000 workers. The economic impact of an FTA between Peru and China suggests that, the elimination of Peruvian tariffs on textiles, wearing apparel and footwear will generate a significant increase in Chinese bilateral exports and because of that, some losses in these industries will be observed. Particularly, leather, textiles and wearing apparel imports from China will grow in 98.03%, 123.11% and 116.05%; contrary, the Peruvian production per industry will shrink in -6.25%, 2.52%, and -1.18%, respectively; generating the reallocation of resources in other industries. Comparing these results with the ones derived from the second scenario (were those sectors are excluded from the tariff elimination process), it seems that, the great benefits for Peru will be reached if Peru choose to maintain their tariff barriers in textiles, wearing apparel and leather products. Nevertheless, it is necessary to point out, that Peru and China have certain complementarity in some textiles and wearing apparel products, and Peru should endeavor to position its finished textiles and wearing apparel products in the “upscale segment” of China. - Other Manufacturing Industries, Chemicals These manufacturing industries include chemicals, rubber and plastic products; metal products; electric, non electric machinery and transport equipment; and other manufactures. In each of them, bilateral exchange with China has shown a clear surplus in favor of China of US$ 1,108 millions in 2006. Peruvian trade with the world has revealed similar patterns. Peruvian manufacturing imports from the world reached US$ 8,598 million, while Peruvian manufacturing exports to the world reached only US$ 1,046 million. It means that Peruvian trade balance, has a deficit of US$ 7,552 million. In general terms, we find that China -as the fourth largest manufacturing country in the world-, exhibits comparative advantages in the manufacturing area; while Peru exhibits a strong purchase capacity. And, as most of these products are used as intermediate or capital goods for other industries, it could be said that is more efficient to import them from an efficient supplier (China) instead of fabricate them locally. However, this complementarity relationship is not true for all of them. Some Peruvian metal products should compete with Chinese metal products, and because of that, the former industry will diminish their production. The model outcomes suggest that these shrink will be around 1.15%. F. Conclusion In conclusion, due to the comparative advantage and complementarities shown by both countries, the model outcomes suggest that both countries will benefit from an FTA. The great benefits, in GDP and welfare, will be reached if Peru excludes from the liberalization process some industries like textiles, wearing apparel and leather products. In that case, the real GDP and the welfare will grow in 0.80% and 0.66% from the baseline. Nevertheless, the great benefits, in exports and imports, will be reached if Peru applies the full liberalization scenario. In that case, the exports and imports will grow 3.05% and 3.09% respectively. 125 Peru – China Free Trade Agreement Joint Feasibility Study 4.2 Model Analysis on Trade Creation, Trade Diversion and Sensitive Industries China A. Introduction of Partial Equilibrium Model - Introduction of Partial Equilibrium Model (PEM) In order to make a quantitative analysis on the influence of establishing the China-Peru FTA, a PEM model is created to act as the cornerstone of the analysis. Different from the CGE model that focuses on calculating the benefit effect of the trade policy; this model focuses on the influence on the price, and demand of the imported products due to the tariff reduction. According to the assumptions of PEM, if the FTA Agreement is signed by China and Peru, both of the countries will reduce the import tariff based on the Agreement (to realize zero-tariff step by step); remove the non- tariff barrier such as the quantity limitation; further open the market. Such measures will have the following two effects in the short term: Trade Creation effect: China’s demand for products imported from Peru will increase since the import price is lower than before for the sake of the preferential tariff reduction. Trade Deviation effect: after China carries out the preferential tariff reduction for the imported products from Peru, because the price of the products imported from Peru is lower than that from other countries, China’s demand for some of the products will be deviated from other countries to Peru. The details are explained as the follows: Trade Creation: d TC = IM PERU ∗ E M ∗ t (1 + t ) IM PERU ∗ IM REST ∗ E S ∗ t d TD = Trade Deviation: IM PERU + IM REST + 1+ t IM PERU ∗ E S ∗ t 1+ t d TC is the value of trade creation, d TD is the value of trade deviation, IM PERU is the IM REST CIF value of products imported from Peru by China, is the CIF value of the same E products imported from the rest of world, M is China’s domestic price elasticity for the Where, E imported goods, S is the elasticity of substitution between the goods imported from Peru and goods imported from the rest of world, t is the initial customs tariff plus the non-tariff barrier . dQ EM = Q d p p ), The first formula is actually the transfiguration of the price elasticity formula ( while the second formula is concluded through complicated calculation that has the following two special conditions: 126 Peru – China Free Trade Agreement Joint Feasibility Study E =0 When s , i.e., when there is no substitute relation between two types of imported products, other countries will not be affected by the preferential tariff reduction between China and Peru. E =∞ s When , i.e., the substitute elasticity between two types of imported products is infinite, other countries will be seriously affected by the FTA. Once the FTA is implemented, all the products originally imported from other countries will be imported from Peru. The PEM model is based on the trade structure and trade scale between China and Peru in 2003, while the duty is based on the duty rate stipulated in the Duty Charge Rule for the Most Preferential Countries announced officially by China that year. Because most of the products imported from Peru are within the import quota, all the duty rates used here were very low. IM PERU and IM REST come from the statistics provided by Chinese customs, and t Both comes from Customs Tariff of Import and Export of the People’s Republic of China 2006. Some of the specific duties are converted into the ad Valorem duty according to the relation between the quantity and the value. The elasticity data EM are estimated by us. From 1994-2003 Chinese Customs Bulk Products Import Quantity/Price Statistics Table (thereafter referred as “Statistics Table”), we can get the quantity and unit price of the imported products. Then logarithm of the quantity and unit is calculated and constant is added, at last the result is concluded through the regression analysis via the method of least square. For those products that are not included in the Statistics Table, a weight is granted to the elasticity by referring to the similar products categories. E S is based on the countries substitute elastic data provided by GATP and converted via Armington arithmetic operators. Similar to all the other quantitative analysis on the elasticity, the elasticity data here is only a rough estimate. The conclusion from the PEM model calculation shows that, in the major trade sectors, to some extent, the FTA does have the trade creation effect and trade deviation effect. For more details, please see Table 4.2. 127 Peru – China Free Trade Agreement Joint Feasibility Study Table 4.2 Trade Creation Value and Trade Deviation Value for Major Categories Unit (US$ 1,000) Category China’s Total Import China’s Import from Peru China’s Import from other countries Trade Creation Value Trade Deviation Value Ratio of Trade Deviation in Import from Peru (%) Ratio of Trade Deviation in Import from other countries (%) Ratio of Trade Creation in Import from Peru (%) Category 1 1135989.46 76100.3 1059889.21 Category 2 1404769.19 550976 853793.44 2970 6738.57 0.0885 0.0064 0.039 8909.42 11410.42 0.0207 0.0134 0.0162 Category 3 71561056.55 2059645 69501411.79 0.47 0.62 0 0 0 Category 4 2958572.7 21386.1 2937186.66 1715.95 1081.96 0.0506 0.0004 0.0802 Category 5 778082.32 591.61 777490.7 40.96 27.55 0.0466 0 0.0692 Category 6 4045213.2 32523.1 4012690.07 0.45 0.71 0 0 0 Category 7 4388496.31 19384.6 4369111.76 1334.24 750.55 0.0387 0.0002 0.0688 Category 8 101342.77 136.43 101206.35 3.54 4.58 0.0335 0 0.026 Category 9 13079766.13 148608 12931158.29 2841.56 3584 0.0241 0.0003 0.0191 Category 10 20157676.3 217.25 20157459.06 7.64 9.73 0.0448 0 0.0352 Total 119610964.9 2909568 116701397.3 17824.23 23608.69 0.0081 0.0002 0.0061 Note: The conclusion of the table is calculated on the basis of China-Peru 2006 trade data and the tariff is the MFN tariff of 2005 of China. The products are classified mainly on the basis of the HS 6 digits of Chinese customs. The items that China has no imports from Peru are not calculated and the imports of China are not equal to the real Chinese imports. Category 1 includes Chinese customs’ Class 1 – Alive animals and animal products; Class 2: vegetable products; Class 3 – animal/vegetable fats, oils and waxes, prepared edible fats. Category 2 includes Chinese customs’ Class 4 – Prepared foodstuffs, beverages, spirits, vinegar, tobacco and manufactured tobacco products. Category 3 includes Chinese customs’ Class 5 – Mineral products. Category 4 includes Chinese customs’ Class 6 –Products of the chemical and allied industries; Class 7 – plastics and articles thereof; rubber and articles thereof. Category 5 includes Chinese customs’ Class 8 –Raw hides and skins, leather, furskins and articles thereof. Category 6 includes Chinese customs’ Class 9 –Wood and articles of wood, wood charcoal, cork, wickerwork; Class 10 –cellulosic material, waste paper, paper, paperboard and articles thereof. Category 7 includes Chinese customs’ Class 11 – Textiles and textile articles. Category 8 includes Chinese customs’ Class 12 – footwear, headgear, umbrellas, feathers and articles made therewith, artificial flowers, articles of human hair; Class 13 – Mineral material products, ceramic products, glass and glassware; Class 14 – natural or cultured pearl, precious stones, precious metals. Category 9 includes Chinese customs’ Class 15 – Base metals and articles of base metal. Category 10 includes Chinese customs’ all other miscellaneous products. 128 Peru – China Free Trade Agreement Joint Feasibility Study B. General Analysis on the Trade Creation and Trade Diversion The trade creation value totals US$ 17.82 million, approximate to 0.61% of Peru’s exports to China in 2006. The trade diversion value totals US$ 23.61 million, equal to 0.81% of Peru’s exports to China in 2006, which, as compared with the value of China’s imports from other countries, is insignificant enough to be ignored. Zero-tariff arrangement between both countries in sectors of agriculture, fishery, food, chemistry textiles and related raw materials manufacture, and base metals and related products manufacture will have a bigger trade creation effect (exceeding US$ 1 million). Peru’s export of relevant products to China will increase to a certain extent. A swift increase will occur in peltry, leather, fur and related products imported from Peru, too. China’s import of mineral products from Peru accounts for 70.79% of China’s total import from Peru. However, the trade creation and diversion is insignificant enough to be ignored. Especially, as three products with the trade value added over US$ 1 million, fish flour and meals, refined copper cathodes , and sections of cathodes and cuttlefish & squid (frozen, dried, salted or in brine), will get the created-trade-value of US$ 8.65 million, US$ 2.15 million and US$ 1.83 million respectively. For the same period, China’s import of these three products totals US$ 1080 million, US$ 4310 million and US$ 170 million respectively. Therefore, China’s market of cuttlefish and squid will face a certain degree of challenge from the imports of those products after the implementation of free trade agreement. From the above analysis, trade creation mainly happens in fishery, textile product and base metal production. C. Analysis of impact on industries - Fishery and relevant industries Peru is a major aquatic products exporter and is the largest fish flour and meal exporter. In 2006, China imported US$ 544.43 million from Peru. So the trade creation effect about this product only takes 1.6% of China’s total imports. As to cuttlefish & squid, the trade creation is US$ 1.83 million. In 2006, China imported US$ 53.28 million from Peru. So the impact of trade creation on fishery is small. - Textile The figure in the table shows that the trade creation and trade deviation about textile products are US$ 1.33million and US$ 0.75 million respectively. That means although China is a major textile products exporter, China and Peru have complementarities in textile products. Peru’s exports of textile will increase by more than 10%. Peru’s textile industry will benefit from the possible China-Peru FTA. 129 Peru – China Free Trade Agreement Joint Feasibility Study - Base Metal Production The major trade creation in base metal production happens to refined copper cathodes with a trade creation of US$ 2.15 million. In 2006, China imported US$ 114.64 million of refined copper cathodes from Peru and Chinese total import in 2006 was US$ 5216.02 million. The potentially increased imports from Peru take 2.2% of the total imports. Chile, Australia and Mongolia are China’s major importers of this product. The impact of trade creation is quite limited. D. Impact on Other Import Markets of China Agricultural products, aquatic products, food and beverage, chemicals, base metal and related products are those affected most due to the Trade Diversion Effect. The trade diversion in such four types of products accounts for 0.64%, 1.34%, 0.04% and 0.03% respectively of China’s total import from abroad. Except the fourth category of products, the trade diversion value of all other products is lower than 1%. So, China-Peru FTA will have limited impact on other import markets of China. Peru A. Introduction of Partial Equilibrium Model Partial equilibrium models can serve as a complement of the general equilibrium analysis aforementioned. The formers, are criticized because they do not take account the economywide effects of policy changes like inter-industry effects, or exchange rate effects, that the latter do. Nevertheless, they are very useful because they have the advantage of working at a very fine level of detail, in some cases, at a tariff line level. In this section, the Trade Policy Simulation Model developed by the UNCTAD, will be used to provide information on the direct trade effects of bilateral tariff elimination between Peru and China. The main assumptions in this model are: ƒ On the export supply side. - The degree of responsiveness of the supply of export to changes in the export price is infinite (the export supply elasticity is infinite). In other words, the market adjusts only through quantity. ƒ On the demand side. – The modelling approach is based on the assumption of imperfect substitutions between different import sources (Armington assumption). It means that the representative agent maximizes its welfare through a two stage optimization process. First, given a general price index, the agent chooses the level of total consumption on a “composite good”. The relationship between changes in the price index and the impact on 130 Peru – China Free Trade Agreement Joint Feasibility Study total consumption is determined by a given import demand elasticity. Then, within this composite good, the agent allocates the chosen level of consumption among the different “varieties” of the good, depending on the relative price of each variety. The extent of the between-variety allocative response to change in the relative price is determined by the Armington substitution elasticity. Two different effects are calculated: The trade creation effect (TCijk) is the increased demand in Peru for commodity “i” from China resulting from the price decrease associated with the assumed full transmission of price changes when tariff or non-tariff distortions are reduced or eliminated. TC ijk = M ijk * Em * dt ijk (1 + t ) ijk Where: Mijk is equal to the imports of product “i” made by country “j” from country “k”, “j” refers to Peru and “k” refers to China; Em is the elasticity of import demand with respect to domestic price; tijk is the initial tariff rate or non tariff distortion in ad-valorem terms applied by Peru to China’s imports and dtijk is the derivate of tijk, The trade diversion effect (TDijk) accounts the tendency of importers (Peru) to substitute goods from one source to another (China) in response to a change in the import price of supplies from China but not from the alternative sources. Thus, if prices fall in China there will be a tendency to purchase more goods from that country and less from countries whose exports are unchanged in price. Trade diversion can also occur not because of the change in the export price as such but because of introduction of preferential treatment for goods from one source (China) while treatment for goods from other sources remains unchanged. Again there could be simply a relative change in the treatment of the goods from different sources in the importing country by differential alterations in the treatment of different foreign suppliers. TDijk = M ij ≠k * M ijk * dt ijk * σ ijk ,≠k M ij * (1 + t ijk ) Where: Mij≠k is the value of Peruvian imports from non-preference-receiving countries; and σijk≠k is the elasticity of substitution across import of good “i” from country “k” and all other countries (≠k). The Partial Equilibrium Model is benchmarked in 2005; it means that world and bilateral trade structure, as well as world and bilateral tariffs are based in this year. Information on elasticities came from World Bank estimates (see: Olarreaga and Nicita, 2006) 131 Peru – China Free Trade Agreement Joint Feasibility Study B. General Analysis on the Trade Creation and Trade Diversion The main outcome of the partial equilibrium model is that the trade creation effect will be greater than the trade diversion effect. Particularly, the PEM model suggests that the complete removal of Peruvian tariffs to China would generate a trade creation effect of approximately US$ 275.3 millions. This means that, Peruvian imports from China will increase in 26.03%. The sectoral imports that will grow the most are: leather products (60.04%), wearing apparel (60.03%), others (39.06%), and wood and paper products (33.18%). From those sectors, the sectors that will increase above US$ 15 million are: leather products, wearing apparel and others. In the case of leather products, 6 subheadings will increase above US$ 1 million: handbags, whether or not with shoulder strap including those without handle, with outer surface of plastic sheeting or of textile materials; the others with outer surface of plastic sheeting or of textile materials; trunks and suitcase with outer surface of plastics or of textile materials; other footwear with outer soles of rubber, plastics, leather or composition leather and uppers of textile materials; other footwear with outer soles and uppers of rubber or plastics; and other footwear with outer soles of rubber, plastics, leather or composition leather, and uppers of leather. In the case of wearing apparel, 4 subheadings will increase above US$ 1 million: men’s or boy’s suits, ensembles, jackets, blazers, trousers, bib and brace overalls, breaches and shorts made of cotton; women’s or girl’s suits, ensembles, jackets, blazers, skirts, divided skirts, trousers, bib and brace overalls, breaches and shorts made of cotton; articles of apparel; and men’s or boy’s suits, ensembles, jackets, blazers, trousers, bib and brace overalls, breaches and shorts made of synthetic fibres. On the other hand, the full liberalization would produce a trade diversion effect of US$ 69 millions. This effect represents around 6.52% of Peruvian imports from China, and 0.60% of Peruvian imports from other countries. C. Impact on Other Import Markets of Peru Electric, Non Electric Machinery and Transport Equipment, leather products, textiles wearing apparel, and others; will be the most affected sector due to trade diversion effect. The effect in such sectors will account 1.03%, 9.31%, 2.12%, 8.02%, and 1.83% respectively of Peru’s total import from other countries. In absolute terms, the greatest diversion will be experimented in the electric, on electric, machinery and transport equipment sector; where the diversion effect will reach US$ 33 million. This will be followed by the effect on textiles (US$ 7.6 million) and leather products (US$ 3.9 million) 132 Peru – China Free Trade Agreement Joint Feasibility Study Trade Creation Value and Trade Deviation Value for Sector (US$ 1000) Sectors 1 Agriculture 2 Chemical,rubber,plastic prods 3 Electric, Non Electric Machinery and Transport Equipment 4 Fishing 5 Flours, meals and pellets of fish 6 Leather products 7 Metal Products 8 Others 9 Petroleum and Mineral Products 10 Textiles 11 Vegetables, fruit, nuts 12 Wearing apparel 13 Wood and Paper products 14 Fats and Oils and their fractions of fish Total Peru's Total Import 1,281,286 2,404,055 3,746,945 47,967 51 88,937 845,101 231,633 2,725,969 463,617 73,512 73,234 519,456 12,501,763 Peru's Import from China Peru's Import from other countries 5,203 147,871 537,264 344 1,276,083 2,256,184 3,209,681 47,623 51 42,122 796,884 159,939 2,676,996 361,323 72,682 41,476 502,825 11,443,869 46,815 48,217 71,694 48,973 102,294 830 31,758 16,631 1,057,894 Trade Creation Value Trade Diversion Value 510 31,339 113,969 41 704 9,171 33,101 54 28,390 8,106 27,998 7,494 32,748 157 19,065 5,519 3,921 3,315 3,023 2,847 7,648 72 3,324 1,787 275,338 68,969 Ratio of Trade Ratio of Trade Ratio of Trade Diversion in import Diversion in import Creation in import from China from other countries from China 13.53% 6.20% 6.16% 15.82% 0.00% 8.38% 6.87% 4.22% 5.81% 7.48% 8.69% 10.47% 10.75% 0.00% 6.52% 0.06% 0.41% 1.03% 0.11% 0.00% 9.31% 0.42% 1.89% 0.11% 2.12% 0.10% 8.02% 0.36% 0.00% 0.60% 9.80% 21.19% 21.21% 12.02% 0.00% 60.64% 16.81% 39.05% 15.30% 32.01% 18.95% 60.03% 33.18% 0.00% 26.03% Source: SMART Model 133 Peru – China Free Trade Agreement Joint Feasibility Study 4.3 Liberalization of Bilateral Trade in Services China Chinese government has issued relevant documents to promote the development of services sectors, aiming at deepening reforms, removing restrictions on market access, breaking monopoly, and enhancing market competition. In 2006, trade in services (imports and exports) reached US$ 192.8 billion, representing 9.9% of total amount of foreign trade. The most important export sectors were transport (34.1%), tourism (24.1%), and other services (11.2%) sectors. The most important import sectors were tourism (36.9%), transport (22.8%), and other services (21.4%) sectors. There are direct impact and indirect impact on China’s trade in services by China-Peru FTA. On the aspect of direct impact, bilateral trade in services will increase significantly, if bilateral governments could achieve agreements on such issues as restrictions on market access and national treatment, etc, to remove barriers to trade in services. On the aspect of indirect impact, increase of trade in services closely relates to trade in goods and direct investment. The possible China-Peru FTA would reduce tariff level, and remove non-tariff barriers of trade in goods. The trade in services will be subsequently increased by the increase of relevant trade in goods and investment, and by investment facilitation and improvement of investment dispute settlement. Therefore, it can be predicted that China-Peru FTA will promote bilateral trade in services. Peru In 2006, the services represented more than 55% of the Peruvian production, and the largest services sectors were retail trade; transport and communications; governmental services and restaurants and hotels. This economic activity is becoming increasingly important in the Peruvian exchange with the world. Particularly, in the last year, Peruvian trade in services (exports + imports) reached US$ 5,851 millions, representing more than 15% of the total trade. By the export side, the most important sectors were travels (56.3%) and transport (21.4%). By the import side, the most important sectors were transports (50.3%) and other services (27.7%). But, there are a range of issues like restrictions on market access, restrictions on operating wholly foreign-owned services companies, minimum capital requirements, restrictions on the repatriation of funds, among others; that currently obstacle trade in services. In order to liberalize the controls that affect the trade in services, the possible FTA between Peru and China should include this issue as an important component of the agreement. In the CGE model, an equivalent measure for services restrictions to trade was not included, so the effects shown below are only the indirect effects in services derived from the liberalization of goods. The outcomes show that, after a full liberalization of goods, the reallocation effect will produce a direct increase of bilateral trade in goods, and this indirectly will enhance the bilateral trade in services. Particularly, in the first scenario the results suggest that the bilateral flows of services from Peru will increase in 1.18% and Peru’s imports of services will decrease in -0.05%. While in the second scenario the results suggest that the bilateral flows of services from Peru will increase in 0.44% and Peru’s imports of services will increase in 0.67%. 134 Peru – China Free Trade Agreement Joint Feasibility Study 4.4 Analysis on Impact of Liberalization of Bilateral Investment China A. Overall Impacts on Bilateral Direct Investments China-Peru FTA will enhance the capacity to draw horizontal FDI of two countries. As the two countries are greatly distant, there is less possible to merge the existing FDIs in the two countries. Therefore, in general, the horizontal FDI from countries outside of the FTA will increase gradually after the establishment of the China-Peru FTA. It is especially true for Peru since a FTA will open the enormous Chinese market. In the other side, China has witnessed an increase in FDIs of US$ 60 billion in recent years, with accumulated FDIs more than US$ 400 billion. It is estimated that FDIs to China will rise with a FTA, however, it will have relatively limited impacts on China’s overall utilization of foreign investments. For bilateral horizontal direct investment in Peru and China, trade may substitute investment in some relatively simple processing products due to reduction of tariffs. However, FDIs in these areas are in small scale. For Peru’s advantageous sectors, where FDIs are usually enormous, such as resources and energy sectors, investment will increase as a result of zero-tariff exercised by China on resources products, and investment facilitation under the FTA. Therefore, the horizontal FDI between China and Peru will go up in general. Bilateral vertical investments will rise simultaneously. First, investment cost will be reduced significantly due to tariffs reduction on equipment and materials. Second, reduction of tariffs on re-export products will contribute to profit increases for investors. In sum, a China-Peru FTA will have positive impacts on FDIs in both countries. B. China’s investment opportunities in Peru The economic development of Peru and China are supplementary to each other. The rich natural resources and cheap labor force of Peru provide good investment opportunities to Chinese companies, especially in areas of mining, agricultural, forestry, fishery, textile, manufacture, ports, road construction, etc. Without advanced technology and sufficient funds for development, most of natural resources in Peru has yet been exploited and utilized, which in turn provides valuable opportunities for resource-intensive enterprises in China. Peru As discussed in chapter 3, there has been a significant increase in foreign investment in Peru and a more significant increase in foreign investment in China. Although these patterns have been reflected in the bilateral patterns of Chinese and Peruvian investment flows, they are relatively modest, compared with the other countries investment inflows and outflows. The economic theory point out that, the increase of investment in an economy has a lot of spillover effects that affects positively their performance. Mainly, it would enhance the transfer of technology, the technological diffusion, and the activation of processes of learning by doing in the receptor economy. But, due to the existing openness of the Peruvian foreign investment system, there would be no large effects attributable to the elimination of currently existing barriers, such as foreign investment controls or performance requirements by the Peruvian side. So, the main effects will come from the improvement of the Peruvian economy positioning in Chinese investors plans; particularly among corporate firms that are currently investing abroad for purposes of supplying the Chinese market with processed natural resources. 135 Peru – China Free Trade Agreement Joint Feasibility Study However, Peru should encourage the Chinese investment in new key sectors for the Peruvian economy like energy and air and maritime transport, and not only in mining sectors. With it, the model modest outcomes for investment (0.06-0.14%) would be significantly enlarged. 4.5 Influences on Major Partners by China-Peru FTA China According to model analysis, China’s exports to Japan, the U.S. and the EU will increase by 0.026%, 0.24% and 0.19% respectively, while China’s import from them will go up by 0.31%, 0.61% and 0.28% respectively. The impact of China-Peru FTA on bilateral trade and investment between China and Latin American countries is relatively insignificant--- there are small effects on trade relationship between China and Chile, Brazil, and Argentina. Peru According to the CGE model analysis, Peruvian exports to all their trading partners will increase. Specifically, Peruvian exports to the U.S, EU and the Rest of Asia will increase by 2.3%, 2.0% and 1.7% respectively. In addition, Peruvian exports to the Andean Community, Chile and Rest of South America, will enhance by 2.6%, 2.4% and 2.14% respectively. In the case of Peruvian imports, the model shows that Peruvian imports from other countries different than China will decrease: Peruvian imports from U.S, EU and the Rest of Asia will diminish in 4.5%, 3.7% and 6.4% respectively; while Peruvian imports from the Andean Countries, Chile and Rest of South America will decrease by 2.6, 3.8 and 3.7%. 136 Peru – China Free Trade Agreement Joint Feasibility Study 5 INFORMATION EXCHANGE ECONOMIC COOPERATION ON OTHER ISSUES AND 5.1 Intellectual Property Rights China Protection of intellectual property rights ("IPRs") has become an essential component of China’s opening-up policy and socialist legal system reform. The formulation of laws and regulations in this field could be traced back to the late 1970s. Since then, China has joined many international conventions related to IPRs, and actively participated in activities initiated by relevant international organizations. Such practices have intensified exchanges and cooperation between China and other countries. A. Industrial Property - Trademark The existing trademark legal system in China include the Trademark Law of the People’s Republic of China, the Implementing Regulations of the Trademark Law of the People’s Republic of China, and other relevant laws, administrative regulations and department rules. The objectives of these laws are to provide protection to right-holders by regulatiing trademark registration substance, procedure, and exclusive rights, in line with the international conventions and prevailing practices regarding intellectual property rights. In order to protect trademark owner's exclusive rights, China's Trademark Law contains not only civil and criminal liabilities but also provides administrative punishment for trademark infringers. The State Intellectual Property Office (SIPO) is responsible for trademark approval, and the Trademarks Bureau under the State Administration for Industry and Commerce (SAIC) is responsible for trademarks registration. - Patent In order to enhance the awareness of the general public on IPR protection, patent protection in particular, and to build up a sound social environment for tpromotion and commercialization of inventions, the National People's Congress approved the second revision of the Patent Law of the People’s Republic of China on August 25, 2000. The revised patent law, which took effect on July 1, 2001, includes the following elements: (1) patent owners would have the right to prevent others from offering for sale the patented product without their consent (Article 11); (2) for utility model and design applications or patents, the final decision on re-examination and invalidation would be made by the people's courts other than for inventions that were patented prior to the amendment (Articles 41 and 46); (3) patent owners could, before instituting legal proceedings, request the people's court to take provisional measures such as to order the suspension of infringing acts and to provide property preservation (Article 61); and (4) conditions for granting a compulsory license would be further clarified. - Protection of the undisclosed information Article 10 of the Law of the People’s Republic of China on Combating Unfair Competition, together with Article 219 of the Criminal Law of the People’s Republic of China, regulates that a business operator must not infringe upon trade secrets. In compliance with Article 39.3 of the TRIPS Agreement, China would provide effective protection against unfair commercial use of undisclosed test or other data submitted to authorities in China as required in support of applications for marketing approval of pharmaceutical or of agricultural chemical products which utilized new chemical entities, except where the disclosure of such data is necessary to protect the public, or where steps have been taken to ensure that the data are protected against unfair commercial use. On May 18, 2006, the State Council promulgated the Regulation on the Protection of the Right to Network Dissemination of Information, effective as of July 1, 2006. 137 Peru – China Free Trade Agreement Joint Feasibility Study B. Copyrights and related rights The Copyright Law of the People’s Republic of China, which was promulgated in 1990, established the basic copyright protection system in China, together with the Implementing Rules of the Copyright Law (effective as of May 30, 1991), the Provisions on the Implementation of the International Copyright Treaty (effective as of September 25, 1992), and other related laws and regulations. In principle, this system is in compliance with international IPR treaties and practices. For the protection of copyright and neighboring rights, not only civil and criminal liabilities but also administrative liabilities have been provided in this system. Therefore, the infringing activities could be curbed in a timely and effective manner, and the legitimate rights of the right-holders could be protected. To alleviate the difference between China's copyright laws and the TRIPS Agreement, amendments have been made to the Copyright Law, which include the following provisions: payment system by broadcasting organizations which use the recording products, rental rights in respect of computer programs and movies, mechanical performance rights, rights of communication to the public, and related protection measures, protection of database compilations, provisional measures, and measures of increasing the amount of legitimate compensation and preventing infringing activities. The Regulations for the Implementation of the Copyright Law, and the Provisions on the Implementation of the International Copyright Treaty have also been amended to ensure full consistency with China's obligations under the TRIPS Agreement. C. Geographical indications The relevant rules of the SAIC and the State General Administration of the People's Republic of China for Quality Supervision, Inspection and Quarantine provide some protection for geographical indications, including appellations of origin. The amendments to the trademark law have specific provisions on protection of geographical indications. China has committed to fully comply with relevant articles in the TRIPS Agreement on geographical indications. D. Chinese policy regarding the main intellectual property treaties China became a member of the World Intellectual Property Organization (WIPO) in 1980 and has been a member party in many Intellectual Property related agreements (table 5-1). In addition, China participated in the TRIPS negotiations during the Uruguay Round, and initialed the Final Act. Table 5.1 China’s Participation in international intellectual property agreements since 1980s Time International intellectual property agreements 1985 Paris Convention for the Protection of Industrial Property 1989 Madrid Agreement Concerning the International Registration of Marks; Treaty on Intellectual Property in Respect of Integrated Circuits 1992 Berne Convention for the Protection of Literary and Artistic Works 1993 Convention for the Protection of Producers of Phonograms Against Unauthorized Duplication of Their Phonograms 1994 Patent Cooperation Treaty; Nice Agreement Concerning the International Classification of Goods and Services for the Purposes of the Registration of Marks 1995 Budapest Treaty on the International Recognition of the Deposit of Microorganisms for the Purposes of Patent Procedure; Madrid Agreement Concerning the International Registration of Marks 1996 Locarno Agreement on Establishing an International Classification for Industrial Designs 138 Peru – China Free Trade Agreement Joint Feasibility Study 1997 Strasbourg Agreement Concerning the International Patent Classification World copyright convention , the international classification nisi pact for the goods and services, the international convention in protecting new species in plant , the intelligent property right pact that has something to do with trade under world trade organization E. Enforcement of Intellectual Property Rights In the aspect of legislation, China have issued or amended laws or regulations such as the Patent Law, the Copyright Law, the Trademark Law, and the Regulations for the Protection of Computer Software, etc., which have improved the legal system and provided a favorable environment for IPR protection. In judicatory aspect, since 1992, special IPR courts have been set up in major cities such as Beijing and Shanghai. Many special tribunals have been established in the Intermediate People’s Courts at all levels to solve IPR-related disputes . According to relevant laws and regulations in China, individuals and enterprises would be held responsible for all their IPR infringing activities, subject to civil and/or criminal liabilities. As for the execution of the law, administrative authorities have tried every effort to strengthen anti-piracy work, enhancing public education in order to ensure that legal environment in China would be able to meet the requirements for enforcing the TRIPS Agreement. During the 15th China-US Joint Commission on Commerce and Trade (JCCT) of 2004, China presented an action plan designed to address the IPR protection. Under this plan, China has committed to: • Significantly reduce IPR infringement levels. • Increase penalties for IPR violations by taking the following actions by the end of 2004:. Subject a greater range of IPR violations to criminal investigation and criminal penalties; Apply criminal sanctions to the import, export, storage and distribution of pirated and counterfeit products; Apply criminal sanctions to on-line piracy. • Crack down on violators by: Conducting nation-wide enforcement actions against piracy and counterfeiting – stopping production, sale and trade of infringing products, and punishing violators by increasing customs control and surveillance aainst import and export of infringing products. • Improve protection of electronic data by: Ratifying and implementing the WIPO Internet Treaties as soon as possible; extending an existing ban on the use of pirated software in central governments and provincial agencies to local governments. • Launch a national campaign to educate the public about the importance of IPR protection. The campaign will include press events, seminars and outreach through television and print media. • Establish an intellectual property rights working group under the JCCT. Under this working group, the trade, judicial and law enforcement authorities in both sides will consult and cooperate on the full range of issues described in China’s IPR action plan. F. Evaluation of agreement on Intellectual Property Rights According to the characteristics of bilateral trade between China and Peru, the intellectual property protection can be fulfilled under the frame of TRIPS. 139 Peru – China Free Trade Agreement Joint Feasibility Study Peru Peru grants an adequate and effective protection of intellectual property rights (IPR) by a combination of international, regional and national legislation. Peru has already signed the main Treaties on Intellectual Property, such as TRIPS, Paris Convention, Bern Convention, Rome Convention, Geneva Convention for the Protection of Producers of Phonograms, Brussels Convention relating to the Distribution of Program-carrying Signals transmitted by Satellite, International Registry of Audiovisual Works and the Washington Agreement. Moreover, Peru has adhered to the WIPO Copyright Treaty (WCT), and to the WIPO Performances and Phonograms Treaty (WPPT). Since May 2005, Peru is signatory of the Lisbon Arrangement for the Protection of Appellations of Origin and their International Registration. In this topic, the Peruvian law has two main statues: the Intellectual Property Law and the Copyright Law, which were enacted in 1996. Both laws incorporate into a single domestic regulation, different international provisions, including those of the TRIPS Agreement83. In fact, Peru reviewed its Intellectual Property Legislation before the WTO’s Council for Trade-Related Aspects of Intellectual Property Rights at the end of the year 2000 and demonstrated successfully that IPR protection in the country is in accordance with the TRIPS Agreement. INDECOPI is the institution that looks after the respect of the IPR in the country. Peru keeps working to develop a culture of respect and enforcement of Intellectual Property rights by participating in several activities to fight against piracy. INDECOPI’s Copyright Office is member of the Central Command of the Commission to Fight against Smuggling and Piracy. Other two INDECOPI offices that keep an eye on the intellectual property rights are the Inventions and New Technologies and the Trademark Offices. To defend IPR, Peru issued the Law 28289 in order to strengthen criminal sanctions related to the violation of these rights and have a more dissuasive effect to conduct piracy. This law also includes provisions on customs procedures to create a specific registry for the importation of optical disks and other raw material. One of the most important topics of interest in IPR is related to the protection of traditional knowledge. In this regard, Peru published the Law for the Protection of Traditional Knowledge on August 10th, 2002. Indigenous people’s traditional knowledge is safeguarded through this law. In addition, this law allows them to enjoy the benefits of holding ownership of their IPR. In May 2004 the National Commission for Access Protection to Peruvian Biological Diversity and Traditional Knowledge of Indigenous Peoples was created. Its main purpose is to fight against bio piracy of Peruvian biological products and traditional knowledge of indigenous peoples84. Since its creation, this Commission has elaborated a preliminary list of genetic and biological resources, which includes the scientific name, family specie, and uses of the product. Likewise, the Commission has identified cases of bio piracy or alleged bio piracy in developed countries related to the following Peruvian products: yacon, sacha inchi, sangre de grado, maiz morado, lucuma, oca, olluco, mashua, colour cotton and maca. Many of these cases involved patent requests or patents already granted, which were developed or obtained from the use of a biological resource or traditional knowledge without the consent of the country of origin or the indigenous peoples’ holders of this kind of knowledge. 83 Also, Peru applies the IPR regulation enacted by Andean Community. In this case, the main legal framework consists on the Decisions 351 (copyright and related rights) and 486 (intellectual property), which were enacted in 1993 and 2000, respectively. Both decisions include substantial intellectual property laws and enforcement issues included in the TRIPS Agreement as well. 84 According to the Peruvian Lawa, bio piracy is defined as the access and use of biological goods or traditional knowledge of indigenous peoples by third Parties, without the corresponding authorization and compensation to the Peruvian State as country of origin or Peru´s Indigenous Peoples as holders of this knowledge, and against the principles established at the Convention of Biological Diversity. 140 Peru – China Free Trade Agreement Joint Feasibility Study In the same way, another Peru’s main concern is related to the protection of geographical indications. The current regulation establishes two different kinds of geographical indications: 1) appellation of origin and 2) indication of source. In the case of the appellations of origin, the Peruvian State is the owner of the appellations of origin and grants authorizations for their use. An appellation of origin is the geographical name of a country, region or locality which serves to designate a product originating therein, the quality and characteristics of which are due exclusively or essentially to the geographical environment, including natural and human factors. Currently, Peru has recognized three appellations of origin: “Pisco” (traditional alcoholic beverage), “Maiz Blanco Gigante del Cusco” (special gigantic corn produced in Cusco) and “Chulucanas” (ceramics made in the Chulucanas area at Northern Peru). Finally, the indications of source are related to any name, expression, image or sign used to indicate or evoke that the product originates from a determined country, region, location or place. 5.2 Movement of Business Persons China In accordance with the Law of the People's Republic of China on the Entry and Exit of Aliens, aliens who would like to enter into China shall apply for visas to the Chinese diplomatic missions or consular posts or other agencies abroad authorized by the Ministry of Foreign Affairs of the P.R.C. The entry of nationals of an economy having visa agreement with the Chinese Government shall be dealt with in accordance with the said agreement. In cases where an economy has special regulations regarding the entry and transit of Chinese citizens, the competent authorities of the Chinese Government may take corresponding measures contingent on the circumstances. In specific situations, such as being invited to China to enter a bid or to formally sign an economic or trade contract or being invited to China for scientific or technological consulting services, and in compliance with the stipulations of the State Council, aliens may apply for visas to port visa agencies authorized by the Ministry of Public Security. Port visas can be obtained immediately. While in China, foreign businesspersons may apply for visas and residence permits to the Entry-Exit Administration Department of the local Public Security Organs. The processing time is 1-5 working days. The application fee is in the principle of equality. Chinese visa is a permit issued to a foreigner by the Chinese visa authorities for entry into, exit from or transit through the Chinese territory. The Chinese visa authorities may issue a diplomatic, courtesy, service or ordinary visa to a foreigner according to his identity, purpose of visit to China and passport type. The ordinary visas consist of eight sub-categories, which are marked with Chinese phonetic letters (D, Z, X, F, L, G, C, J-1 and J-2 respectively). A. Tourists Aliens who come to China for sightseeing, visiting relatives or other private purposes should apply for Visa L. For a tourist applicant, in principle he shall evidence his financial capability of covering the traveling expenses in China, and when necessary, provide the air, train or ship tickets to the heading country/region after leaving China. For the applicants who come to China to visit relatives, some are required to provide invitation letters from their relatives in China. An applicant who is invited to China on a visit, on a study or lecture, business tour, for scientifictechnological and cultural exchanges, for short-term refresher course or for job-training, for a period of no more than six months should apply for Visa F. To apply for a Visa F, the invitation letter from the inviting unit or the visa notification letter/telegram from the authorized unit is required. Businesspersons holding visas F may stay in China for the period prescribed in their visas without obtaining further residence permits. A visa F can be extended indefinitely, with 141 Peru – China Free Trade Agreement Joint Feasibility Study each extension no more than 3 months and the total duration of stay no more than 1 year. Accompanying family members are subject to the same terms. Aliens who transit through China should apply for Visa G. The applicants are required to show valid visas and on-going tickets to the heading countries/regions. Train attendants, air crewmembers and seamen operating international services, and their accompanying family members should apply Visa C. To apply for a visa C, relevant documents are required to be provided in accordance with bilateral agreements or regulations of the Chinese side. Foreign correspondents who make short trip to China on reporting tasks should apply for Visa J2. The applicants for J-2 visas are required to provide a certificate issued by the competent Chinese authorities. B. Residence Aliens who are to take up posts or employment in China, and their accompanying family members should apply for Visa Z. To apply for a Visa Z, an Employment License of the People's Republic of China for Foreigners (which could be obtained by the employer in China from the provincial or municipal labor authorities) and a visa notification letter/telegram issued by an authorized organization or company are required. An Alien Residence Permit could be extended based on the purposes of the holder's stay. Accompanying family members are subject to the same terms. Family members should not work unless having been granted Employment Permit. Aliens who come to China for study, advanced studies or job-training for a period of six months or more should apply for Visa X. To apply for a Visa X, certificates from the receiving unit and the competent authority concerned are required, i.e., Application Form for Overseas Students to China (JW201 Form or JW202 Form), Admission Notice and Physical Examination Record for Foreigners. Foreign resident correspondents in China should apply for Visa J-1. The applicants for J-1 visas are required to provide a certificate issued by the competent Chinese authorities. C. Permanent Residence Permit (granted for an indefinite time) Aliens who are to reside permanently in China should apply for Visa D. A permanent residence confirmation form shall be required for the application of Visa D. The applicant shall apply to obtain this form himself or through his designated relatives in China from the exit-and-entry department of the public security bureau in the city or county where he applies to reside. D. Evaluation of an agreement on Movement of Business Persons From the standpoint of movement of business persons, no inconveniences are foreseen for the execution of an FTA with Peru, as China has made great efforts to facilitate the entry and residence in the past several years, for example, some special policies have been made to facilitate the entry and residence of the following: a)Foreign senior management personnel who come to China to carry out agreements signed by China's central or local governments and foreign governments on major scientific & technological, or key construction projects at the state, provincial or ministerial levels according to Chinese standards; b)Foreign qualified scientists and technicians or high-level management personnel taking posts in China; c)Foreign nationals coming to China to carry out inter-governmental free aid agreements; d)Foreign investors, especially those investing in China's western areas; From July 1, 2003, businesspersons holding valid Singaporean and Brunei ordinary passports are exempted from visas when staying in China for no more than 15 days; From September 1, 2003, businesspersons holding valid Japanese ordinary passports are exempted from visas when staying in China for no more than 15 days; China joined the APEC Business Travel Card (ABTC) Scheme in 2001, and has issued the card in 2003;To facilitate business across the country mobility, half of the immigration channels are equipped with Optical Character Recognition (OCR) readers. 142 Peru – China Free Trade Agreement Joint Feasibility Study Peru A foreigner who intends to undertake business activities in Peru, such as signing contracts, is considered a business person and should apply for a Temporary Business Visa. However, a foreigner with a business visa cannot generate income in Peru. The Temporary Business visa is granted for up to 90 days and can be extended for up to 30 additional days, according to the Legislative Decree No. 703, Foreigner Status Law. Another option for business persons is to hold an APEC Business Travel Card. Peru joined into this system in the year 2000. However, if the foreigner just wants to visit Peru, or hold business meetings, he or she can enter Peru with a tourist visa. Nevertheless, holding a tourist visa does not allow the signature of contracts. In the case of Chinese citizens, visa is required. The Office in charge of immigration and visa issues in Peru is the General Directorate of Immigration and Naturalization (DIGEMIN), which is a branch of the Ministry of Internal Affairs. In order to generate income in Peru, resident visa is needed. The foreigner’s legal representative or manager should request a residence visa for up to one year in DIGEMIN, which can be extended annually for one additional year. Also, relatives are granted with the same period. It is possible for a foreigner to change his or her Temporary Business visa to a Resident visa. 5.3 Transparency China China has made great efforts to ensure transparency regarding the laws, regulations and other measures it has issued and implemented. The Government of China regularly issued publications providing information on China's foreign trade system, such as the "Almanac of Foreign Economic Relations and Trade" and "The Bulletin of the MOFCOM" published by the MOFCOM; "Statistical Yearbook of China", published by the State Statistical Bureau; "China's Customs Statistics (Quarterly)", edited and published by the Customs. China's laws and regulations of the State Council relating to foreign trade are all published, as are rules issued by departments. Such laws, regulations and rules are available in the "Gazette of the State Council", the "Collection of the Laws and Regulations of the People's Republic of China" and the "MOFCOM Gazette". The administrative regulations and directives relating to foreign and domestic trade are also published on the MOFCOM's official website (http://www.mofcom.gov.cn) and in periodicals. There are no foreign exchange restrictions regarding import or export. Information on foreign exchange measures is published by the State Administration of Foreign Exchange (SAFE) and is available on SAFE's website (http://www.safe.gov.cn) and via the news media. Information concerning the administration of imports and exports is published in the "International Business" newspaper and the "MOFCOM Gazette". Information on China's customs laws and regulations, import and export duty rates, and customs procedures is published in the "Gazette of the State Council" and in the press media, and is available upon request. The procedures concerning application of duty rates, customs value and duty determination, drawback and duty recovery, as well as the procedures concerning duty exemptions and reduction, are also published. Customs also publish monthly customs statistics, calculated according to country of origin and final destination, on the basis of eight-digit HS levels. Any bilateral trade agreements concluded between China and its trading partners, and protocols on the exchange of goods negotiated under them are published in "The Treaty Series of the PRC". In addition, the "Directory of China's Foreign Economic Relations and Trade Enterprises" 143 Peru – China Free Trade Agreement Joint Feasibility Study and "China's Foreign Trade Corporations and Organizations" are two publications which identify foreign trade corporations and other enterprises in China engaged in foreign trade. The full listing of official journals is as follows: Gazette of the Standing Committee of the National People's Congress of the People's Republic of China; Gazette of the State Council of the People's Republic of China; Collection of the Laws of the People's Republic of China; Collection of the Laws and Regulations of the People's Republic of China; Gazette of MOFCOM of the People's Republic of China; Proclamation of the People's Bank of the People's Republic of China; and Proclamation of the Ministry of Finance of the People's Republic of China. China set up the China WTO Notification and Enquiry Centre immediately after the accession to provide enquiry service on trade-related information for all members, enterprises and individuals. The establishment of this enquiry point has been notified to the WTO. The Chinese government has also designated Foreign Economic and Trade Gazette as the official journal for the laws, regulations and other measures relating to or affecting trade in goods, trade in services, TRIPS or TRIMS. These laws, regulations and measures cannot be enforced before their publication. Peru The government of Peru has a strong commitment on transparency issues in order to give the chance to the society to be well informed in a wide array of topics where the Peruvian state has a determined role. All laws and regulations are required to be published in the official newspaper “El Peruano” to enter into force. On 2003, the Ministry Council approved the Transparency and Access to Public Information Law. This norm promotes the publication of government acts and regulates the fundamental right to access to information. The law establishes that all information the State has is presumed to be public, unless specified in a particular law. It also determines the obligation for all public entities to provide any information requested by individuals. In this sense, all people (not only nationals) have the right to request and obtain any information from the State without stating any reason. This law also requires all public entities to have websites with a specific transparency section, where all sectoral norms, as well as their texts of administrative procedures should be published. Also, all the initiatives within the Peruvian Congress as well as the laws enacted by this institution are published in the internet. In the same way, regulatory bodies also have the obligation to publish in advance their regulations. In terms of economic policy, the main economic policy guidelines are published by the Ministry of Economics and Finance through the Multiannual Macroeconomic Framework, which also includes Peru’s mid-term fiscal objectives and some policy measure on the main macroeconomic indicators. In addition, Peru’s Central Reserve Bank also informs and evaluates, on a regular basis, on the evolution of the monetary policy. Data on Peru’s economic indicators are widely available in these institutions’ websites, as well as in the National Institute of Statistics website. 5.4 Trade and Investment Promotion China China has made great efforts to promote trade and investment, for example the average tariff rate had been decreased from 15.3% to 9.9% from the entering of WTO to 2005; China has reduced some quota tariff rate and non-tariff barriers; made customs and other trade-related laws, regulations and guidelines accessible to the public in paper form (e.g. publication) or via Internet. For example, China Customs has set up its legal database updated regularly. This database contains all information on existing customs laws, regulations and administrative guidelines. All information can be obtained as well via customs website: (www.customs.gov.cn); 144 Peru – China Free Trade Agreement Joint Feasibility Study China has also taken some measures to facilitate trade in movement of goods, standards, business mobility and electronic commerce. The China Council for the Promotion of International Trade (CCPIT) is the most important and the largest institution for the promotion of foreign trade in China. It comprises individuals, enterprises and organizations representing the economic and trade sectors in China. The mission of the CCPIT is, in line with laws and government policies of the People’s Republic of China, to facilitate foreign trade, to use foreign investment for the introduction of advanced technologies, to conduct activities of economic and technological cooperation in various forms, to promote development of economic and trade relations, and to improve the mutual understanding and friendship between China and all other countries in the world. With the approval of the Chinese government, the CCPIT established a separate organ– China Chamber of International Commerce (CCOIC) - in 1988, which worked together with the CCPIT. The CCPIT admits new members from enterprises in all parts of China, and promotes trade through its functions of information consultation, exhibition, legal assistance, etc. Besides the CCPIT and the CCOIC, there are other trade promotion institutions, such as the Trade Development Bureau of the Ministry of Commerce, the China Export & Credit Insurance Corporation and so on. The Investment Promotion Bureau of the Ministry of Commerce is the important institution for the promotion of investment in China. Its mission is to attend meetings of the World Association of Investment Promotion Agencies (WAIPA) on behalf of the Ministry of Commerce and handle relevant affairs; to contact and communication with overseas investment promotion agencies and chambers of commerce and associations; to organize and sponsor activities of bilateral investment promotion bodies; to provide guidance on and participate in the work of the joint mechanism of nationwide investment promotion agencies; to guide the work of investment promotion agencies at localities; and to guide the work of the China International Investment Promotion Center. It also carry out publicity and promotion activities at home and abroad; conduct investmentrelated surveys and research; prepare and distribute materials and publications concerning investment promotion such as the Compilation of Laws and Regulations on Foreign Investment Utilization, Statistics on FDIs in China, and China Investment Guide; and take care of the daily operation of Invest in China and provide information to businesses; organize the China International Fair for Investment and Trade; undertake various investment promotion activities designated by the Ministry of Commerce; plan and organize large investment promotion activities at home and abroad; and organize training programs, seminars, fairs and exhibitions specializing in investment; engage in investment-related consulting and information services, market research, credit investigation, and investment promotion planning, and etc; assist foreign-invested enterprises in going through required legal procedures; and handle investors’ complaints involving more than one province or tasked by senior leaders. China has taken some business facilitating measures to improve its domestic business environment. Improvements have been made on government administration, and the competitive market environment and supportive legal environment have been built up. More one-stop shop services have been provided by local governments, and investment promotion agencies have been established at each province to assist investors. To create an effective government administrative environment, efforts have been made to the following areas: (1) Gradually reform the existing administrative system to improve government efficiency. Currently the government focuses on decentralization and simplifying the approval procedures for foreign invested projects; (2) Set up governance linkages between different governments thanks to the fast development of computer network; (3) Conduct training programs for officials in various specialized areas. To create competitive market environment so as to increase the investors’ confidence, the government has kept on rectifying economic order by: strengthening the legitimate enforcement for infringements to protect IPR, removing barriers hinder regional/local protections and 145 Peru – China Free Trade Agreement Joint Feasibility Study monopolies, cracking down the behavior of making fake and shoddy products and other illegal activities, revoking all of the unauthorized fees, inspection, levies and fines on foreign invested enterprises (FIEs); strengthening the management of fee collection by making transparent fee collection items for FIEs. To create supportive legal environment, Chinese government is keeping on reviewing the existing laws, regulations and administrative practices at both central and local level. Both central and local governments have established regular contacts with those main export enterprises in order to provide better services and help them solving the difficulties during their production and operation. The autonomy on operation and management of foreign invested enterprises is protected through improving related legislation, and intensifying the execution of law. Both the legal rights of all investing parties and workers’ interests and rights are protected by law. The social services system has been further improved, as well as other social intermediary institutions. Peru PromPerú (Commission for Peru’s Promotion on Exports and Tourism) and ProInversión (Private Investment Promotion Agency) are the two Peruvian institutions in charge of promoting trade and investment, respectively. PromPerú is the agency in charge of implementing export promotion policies in accordance with the National Strategic Export Plan. In this sense, in terms of export promotion, PromPerú seeks to promote activities whose objectives are: • • • • • to increase the growth of Peru’s exportable supply; to consolidate and diversify export destination markets; to defend the image of Peru’s exporting goods; to support the development of current and new exporting goods in all its regions; to encourage an exporting culture within the society. In order to achieve these objectives, PromPerú carries out commercial intelligence activities and market research, giving emphasis to organize the participation in fairs, entrepreneurial missions, roundtables and exhibitions. Additionally, PromPerú implements actions to solve critical points of the exporting chain that difficult the sustainable development of exports. In this sense, PromPerú helps small and medium enterprises through training and technical support. PromPerú can assist these companies in designing export plans that defines the objective markets, costs and export prices and the promotion strategy. Also, PromPerú promotes among these companies the implementation of quality systems to reduce costs and provides technical assistance to have an active presence on the Internet, through the execution of e-commerce projects managed by the interested companies85. In terms of investment promotion, these activities are in charge of ProInversión, whose mission is to promote investment by non-depending private actors from the Peruvian State, so as to foster Peru’s competitiveness and sustainable development in order to improve welfare among the population. The activities carried out by ProInversión are based on the following guidelines: • • • • to promote investments in all the regions and provinces of Peru; to prioritize investment promotion on activities that help to increase the employment levels, national competitiveness and exports; to prioritize investment promotion on activities matching national, regional and local interests; to improve quality and expand coverage of public utilities through different modalities; 85 For more information, see http://www.prompex.gob.pe/PROMPEX/Portal/Menu/BuyerEnglishMenu.aspx?.menuId=104 146 Peru – China Free Trade Agreement Joint Feasibility Study • • to develop mechanisms oriented to attract and assist investors; to promote the image of the country as an adequate place to develop domestic and foreign investments. In this regard, ProInversión offers a wide array of services for investors in Peru. At the preestablishment level, potential investors can request information on macroeconomic data, legal framework, tax regime and others. ProInversión can also prepare an agenda of activities with potential partners, suppliers, authorities, clients, business associations and so on. At the establishment level, ProInversión has the attribution to guide investors with the paperwork and other formalities needed to obtain the proper authorizations to start operations in Peru. Finally, at the post-establishment level, it is possible to assist investors in establishing contacts with government and private organizations; provide non-financial support to expand the investor’s business; and help identifying bottlenecks which can affect their activities and factors that can contribute to a successful business operation86. ProInversión is the entity responsible of promoting investment in public infrastructure works and utilities under concession modality. ProInversión’s responsibilities include the conduction of the public tenders or bids and the awarding of the concession. These concessions include projects with mixed participation, in which the State co-finances part of the project. Furthermore, ProInversión defines the modalities of the participation of private investment in State-owned companies, when necessary. These modalities include: 1) stock or share transfers; 2) capital increase; 3) joint ventures; and 4) selling of the state assets87. 5.5 Small and Medium Enterprises Cooperation China China has been encouraging the development of the small and medium-sized enterprises (SMEs). In order to improve the environment for the development of SMEs, provide job opportunities in urban and rural areas, and encourage the important role of SMEs in national economic and social development, China issued the SME Promotion Law, effective on January 1,2003. Article 16 of the Promotion Law points out that the State will take measures to broaden the channels of direct financing for SMEs, and gives them active guidance in their efforts to create conditions for direct financing through various ways as permitted by laws and administrative regulations. Article 17 regulates that the State encourages, through taxation policies, legitimately established risk investment institutions to increase direct investment in SMEs. Article 3 underlines that the State will apply the principles of active support, strong guidance, perfect service, lawful standardization and guaranteed rights and interests, in order to create a favorable environment for their establishment and development. Article 4 emphasizes that the State Council shall be responsible for formulating policies regarding SMEs and make overall planning for their development; The department under the State Council in charge of work in respect of enterprises shall arrange for the implementation of the State policies and plans concerning the SMEs, making all-round coordination and providing guidance and services in the work regarding such enterprises throughout the country. The related departments under the State Council shall, according to the policies and overall planning of the the State for SMEs and within the scope of their respective functions and responsibilities, provide guidance and services to such enterprises. Article 5 points out that the department under the State Council in charge of work in respect of enterprises shall, according to industrial policies of the State and in light of the characteristics of the SMEs and the conditions of their development, determine the key ones for support by formulating a catalogue of SMEs to be provided with guidance for their industrial development or by other means, in order to encourage the development of all such enterprises. Article 6 outlines that the State protects the lawful investments made by SMEs and their investors, as 86 For more information, see http://www.ProInversión.gob.pe/default.aspx?ARE=1&PFL=0 A list of investment opportunities promoted by ProInversión is available at http://www.ProInversión.gob.pe/1/0/modulos/JER/PlantillaStandardsinHijos.aspx?ARE=1&PFL=0&JER=807. 87 147 Peru – China Free Trade Agreement Joint Feasibility Study well as the legitimate profits earned from the investments. No unit or individual may infringe upon the property and lawful rights and interests of such enterprises. In practice the main measures promoting development of the SMEs adopted by the Chinese government are including: 1) Financial Supports. It is from both the central and local governments. 2) Support for Establishment of Enterprises. The State supports and encourages the establishment and development of SMEs through taxation policies. 3) Technological Innovation. The State formulates policies to encourage the SMEs to adopt advanced technology to improve product quality. 4) Market Development. The States encourages and supports large enterprises to establish stable relations of cooperation with SMEs. 5) Public Services. The State encourages all sectors of the society to establish and improve the service system for SMEs. With regards to the Standards of SMEs, the Law of the People's Republic of China on Promotion of Small and Medium-sized Enterprises, and the Tentative regulations on the Standards of the Small and Medium-sized Enterprises outline the overall standards to classify the SMEs, and specific standards based on different industries according to the application conditions to enterprises with various ownership and forms of organization. Detailed information can be obtained at the website: http//www.sme.gov.cn. Peru According to the Law on Promotion and Formalization of Micro and Small Enterprise, a micro enterprise must have 10 employees at most and annual sales not above 150 Tax Units88. To qualify as small enterprise, the number of employees must not exceed 50 and its annual sales must be in between 150 and 850 Tax Units. The Law does not define what a medium enterprise is. Nonetheless, Peru’s National Authority of Tax Administration (SUNAT) classifies the companies by size as follows: - Micro enterprise: annual sales below US$ 150,000 Small enterprise: annual sales between US$ 150,000 and US$ 850,000 Medium and large enterprises: annual sales over US$ 850,000. A publication from the Ministry of Production shows that the contribution of the micro and small enterprises (year 2004) to Peru’s GDP was around 42%. Also, it states that micro and small enterprises generated 88% of the private employment and accounted for 98% of the number of formal businesses in the country (94.4%, micro enterprises and 3.9%, small enterprises)89. However, these figures reflect only the conditions at the formal sector. The most recent estimations indicate that there are 2,500,000 enterprises of these sizes, but only 648,000 of them belong to the formal sector90. The Ministry of Labor and Employment Promotion is the institution in charge of enacting the general policies and regulation concerning the development of micro and small enterprises. Its main objective is to promote competitiveness, association, formalization and institutionalization in the sector to allow the parties involved to participate in the market under better conditions. 5.6 Customs Procedures China China joined the International Convention on the Simplification and Harmonization of Customs Procedures in 1988, and signed the Protocol on the Amendment of the International Convention on the Simplification and Harmonization of Customs Procedures on June 15, 2000. The 88 th As of June 30 , 2007, 1 Tax Unit is equivalent to 3,450 soles. Espinoza, Carlos (2006). “Formalization of the Micro and Small Enterprises in Peru”, published in “Small and Micro Enterprise Financing: A Tool for Mainstreaming the Informal Sector”, by the Ministry of Production, on behalf of the APEC Secretariat. 90 Ibid. 89 148 Peru – China Free Trade Agreement Joint Feasibility Study declaration, examination, leving of duties and release measures adopted by China Customs are consistent with international practice. Being a contracting party of the revised Kyoto Convention, China Customs has started implementing a number of projects to simplify its clearance procedures. Pilot operations were carried out in some major regions with substantial achievements. Such initiatives are in line with the principles of the revised Convention and advocated by the World Customs Organization (WCO). The Guidelines on implementing the revised Convention has been translated into Chinese and will be made available to all customs officers and business on request. China attaches great importance to international customs activities and is an active player in the work of international organizations including the WCO and APEC. In meeting the challenges brought about by the globalization and rapid progress of science and technology, and meeting its commitments as WTO member, China has taken further measures to accelerate its modernization process to facilitate the business and international trade through full implementation of customs-related WTO Agreements and the Collective Action Plans under the Sub-committee on Customs Procedures (SCCP CAP) items. As a result, it has greatly improved the effectiveness of customs control, achieved a higher level of integrity, and come up with more streamlined customs procedures. China E-port system was put into operation and has been working well. The system has been upgraded from H883 to H2000. H2000 system is being improved to realize electronic transmission and exchange of trade data or information between customs authority and other trade related government agencies and enterprises. The system is designed to deal with on-line processing of duty payment (electronic fund transfer), drawback and manifests, etc. On January 1, 2002, China Customs has started its full implementation of the WTO Customs Valuation Agreement across the country, and carried out Measures of the Customs of the People’s Republic of China for the Assessment of Dutiable Value of Import and Export Goods .After that, China Customs has implemented the Provisions of the Decision on the Treatment of Interest Charges in Customs Value of Imported Goods and the Decision on the Valuation of Carrier Media Bearing Software for Data Processing Equipment both adopted by the WTO Committee on Customs Valuation. In 2006, China Customs further revised the above Measures with a view to improving it. The overwhelming majority of China's customs duties are ad valorem duties. The customs value of imported goods is assessed according to the C.I.F. price based on the transaction value, as defined in the Customs Valuation Agreement. If the transaction value of imported goods can’t be determined, the customs value will be determined by other means provided in the Customs Valuation Agreement. The Customs Law provides for appeal procedures. In the event of a dispute over calculation of duty paid or payable with the Customs, the importer can apply to Customs for a reconsideration of the case. If the appeal is rejected, the importer can sue at the People's Court. In order to ensure clear appeal provisions and procedures, progress has been made in developing software of Management System of Administrative Appeals System. Nationwide investigation and research on appeal work is undergoing. On January 1, 2007, the import and export taxation rule and statistical catalogue of China’s customs started to introduce “International Convention for Harmonized Commodity Description and Coding System” (Harmonized System, HS) of 2007 version issued by World Customs Organization. To implement Harmonized System and new content of 2007 version comprehensively, China’s customs has advanced related training for the staff of the customs nationally. China’s customs has improved the regulation of sorting and issued “PRC Customs Import and Export Goods Sorting Management Regulation” which was implemented on May 1, 2007. Additionally, China’s customs has updated the material database of present sorting rules to ensure all customs of China can make use of it efficiently, and guarantee the consistence of sorting management. 149 Peru – China Free Trade Agreement Joint Feasibility Study More specific measures have been taken to raise the level of customs integrity. Integrity Action Plan has been implemented across the country. China Customs is making and will continue to make greater efforts than ever in modernizing its administration and performance. Its objective is to facilitate legitimate trade through more simplified procedures and more efficient administration, while protect the benefits of community and the country through more effective enforcement of customs laws and regulations. Peru The Ministry of Economics and Finance is the responsible institution of planning, directing and controlling Peru’s customs policies. However, the Peruvian Customs Service as part of SUNAT (National Authority of Tax Administration) is in charge of implementing these policies. In this way, the Peruvian Customs is responsible of the administration, collection, control and enforcement of international traffic of goods, means of transportation and people, within Peru’s Customs territory. In addition, the Peruvian Customs is accountable for managing the regulations applicable to the regimes and customs operations, special and exceptional customs locations, regulations on origin, international treaties and conventions, and managing the tariff nomenclature schedule and customs evaluations. It also processes requests for exemptions from duties and/or customs taxes, authorizes the operation of foreign trade operators, and supervises the activities of the inspection/verification companies; and provides solutions to technical queries within its competence. In 1998, Peru became a signatory country of the International Convention of Harmonized Commodity Description and Coding System (HS). The Peruvian Tariff Nomenclature is organized at a 10-digit level and based on the Common Nomenclature of Andean Country st (NANDINA), organized at a 8-digit level, which is also based on the HS. On April 1 , 2007, Peru implemented the Tariff Book which includes the Fourth Amendment of the Harmonized System and Decision 653 of the Andean Community. In terms of customs valuation, Peru notified WTO the application of the WTO Customs Valuation Agreement to the whole universe of tariff lines since April 2000. Approximately, 85% of the imported volume is valued using the “transaction value” method. Currently, SUNAT is implementing some measures whose purpose is to prevent price sub-valuation on imported goods, such as training sessions, access to new information sources and strengthening of the capacity to conduct statistical data analysis. Peru has experienced some problems regarding price sub-valuation on imported goods, which has been a common practice among importers, especially in the textile and apparel sector, from the time the application of the WTO Customs Valuation Agreement entered into force. The adoption of measures to reduce this kind of malpractice is very complex, since new modalities are constantly used to declare an inferior value to the real value paid by the importer. In terms of trade facilitation, the Peruvian Customs Service has signed agreements with other governmental entities to interconnect their information systems, which will allow the exchange of information in order to simplify and make effective clearance of goods91. Nowadays, the Peruvian government is working to establish a Foreign Trade Single Window. In this context, governmental entities that issue authorizations, licenses and similar documents will share information and manage the payment of services electronically from one single attention point. Up to now, 3 decrees related to the FTSW have been published: 91 The governmental entities that signed agreements with the Peruvian Customs Service are the following ones: Ministry of Health, Ministry of Transportation and Communications, National Agrarian Health Service, Ministry of Production and Financial Intelligence Unit. 150 Peru – China Free Trade Agreement Joint Feasibility Study • • • Supreme Decree Nº 165-2006-PCM: Foreign Trade Single Window Creation; Supreme Decree Nº 081-2006-PCM: exonerates the payment of duties, rates or public prices to organizations that require information of another organization of the Public Administration. Supreme Decree Nº199-2006-EF: the FTSW will be in charge of MINCETUR. This mechanism is expected to be fully implemented by 2008. The current institutions participating in this mechanism are as follows: • • • • • • • • • • • • Ministry of Foreign Trade and Tourism Presidency of the Ministry Council Ministry of Economics and Finance Ministry of Transportation and Communications (General Directorate of Communications) Ministry of Production Ministry of Internal Affairs (DISCAMEC – General Directorate of Control of Security Services and Control of Weapons, Ammunition and Explosives for Civilian Use) Ministry of Health (DIGESA - General Directorate of Environmental Health; DIGEMID – General Directorate of Medicines, Supplies and Drugs) Ministry of Agriculture INRENA – National Institute of Natural Resources SENASA - National Agrarian Health Service ITP - Technological Fishing Institute SUNAT - National Authority of Tax Administration 5.7 Dispute Settlement China Generally speaking, there are three ways of resolving commercial disputes in Mainland China: consultation and mediation, arbitration, and litigation. First, China has always advocated and encouraged settlement of international commercial disputes by arbitration. As early as in 1956, the Chinese Government set up an arbitration body whose sole purpose was to settle international commercial disputes. Now, China ranks first in terms of the number of cases handled by Chinese arbitration organizations. And there are two foreign-related arbitration organizations in China, which are, the China International Economic and Trade Arbitration Commission (CIETAC) and the China Maritime Arbitration Commission (CMAC). Second, disputes could be brought to a people’s court in a civil action for settlement if the parties concerned have had no arbitration clauses in their contract or have not consequently reached a written arbitration agreement. Third, choosing consultation and mediation for dispute resolution is usually between arbitration and litigation. Consultation can be facilitated by a third party if agreed on by the disputing parties. It is largely an informal way of dispute settlement, but the result can still be legally binding if it is properly recorded in an agreement between the parties. Mediation that is presided over by a judge is a required step during litigation procedures according to the PRC Civil Procedure Law. The judge who hears the case will usually conduct mediation after the initial presentation of the case in court with evidence and argument by both parties. In simple words, arbitration is a legal process in which the dispute of the parties is heard by a private individual or panel of several private individuals (qualified arbitrators), rather than the courts. Arbitration results in an award or decision being made by the arbitrator(s).Arbitration between Chinese and foreign parties in China is usually conducted by the China International Economic and Trade Arbitration Commission (CIETAC) in Beijing, Shanghai or Shenzhen in 151 Peru – China Free Trade Agreement Joint Feasibility Study accordance with its own Arbitration Rules and subject to the PRC Arbitration Law and other relevant laws. The basic framework for civil litigation in Mainland China is laid down in the PRC Civil Procedure Law. Other relevant sources of authority include various judicial interpretations by the Supreme People’s Court or the Supreme Procurate, the PRC Contract Law, the laws and regulations that govern foreign investment enterprises, and the Foreign Investment Enterprise Winding Up Measures. Since becoming a WTO member in 2001, China has been extensively involved in the WTO dispute settlement affairs. On June 6 2006, the China Council for the Promotion of International Trade (China International Chamber of Commerce) launched its dispute settlement center in Xiamen. The center is positioned to provide mediation for business disputes of foreign trade and economic nature. The settlement center has an advisory board consisting of representatives from such city authorities as the government, legislative council of the people’s congress, intermediate court, maritime court, legislative bureau, judicial office, industrial and commercial administration, foreign investment bureau, trade development bureau, arbitrary committee and the Law School of Xiamen University. On top of that, 22 experts with their respective specialties are also taken on board. The objectives were to seek amicable solutions and avoiding going to courts. Peru The Peruvian Government promotes the use of Alternative forms of Dispute Resolution (ADR) for disputes that might emerge, including trade issues. The General Arbitration Law published on January 31st, 1996, includes international arbitration. This particular law implements the Convention on the Recognition and Enforcement of Foreign Arbitrage Awards (New York Convention). Peru has incorporated foreign awards to its legal system, according to international treaty procedures where Peru is participating. For the recognition of foreign awards, issued in an international arbitration case, the regulations applied are the same as the ones established to recognize any foreign legal sentence. As WTO member, Peru considers the Dispute Settlement Understanding (DSU) as an effective way to resolving disputes. The trade agreements negotiated with Chile, Thailand and United States contain a chapter on dispute settlement that respects the structure of WTO’s DSU. Also, as a member of the Andean Community, Peru participates in the Andean Dispute Settlement System. In terms of disputes between governments and private entities, Peru is a signatory of the following international conventions that regulate trade arbitration: • • • • Convention on the Recognition and Enforcement of Foreign Arbitrage Awards Convention on the Settlement of Investment Disputes between States and Nationals of Other States Inter-American Convention on International Trade Arbitration Inter-American Convention on Extraterritorial Efficacy of Foreign Sentences and Arbitration Awards Among private parties, the main institutions in Peru dealing with any dispute resolution process are the following ones: • • The Lima Chamber of Commerce and other regional Chambers of Commerce around the country. The Center for Arbitration and Trade Conciliation (CEARCO), constituted within the Peruvian Chapter of the Inter-American Commission for Trade Arbitration, where business and guild organizations participate. 152 Peru – China Free Trade Agreement Joint Feasibility Study • The Bar Association and its respective affiliates in the country. The Lima Bar Association has established a permanent Arbitration Tribunal. In addition, Conciliation Centers have been set up nationwide. According to the Ministry of Justice, there are 528 centers with almost 12,260 conciliators. 5.8 Trade Facilitation Matters China As a participator and promoter of economic globalization and regional economic integration, as well as a big country of international trade, china is making efforts to accelerate the process of trade facilitation so as to improve its foreign trade efficiency, and reduce the trade costs. On one hand, China is active in taking part in the negotiation on trade facilitation under APEC and WTO framework, on the other hand, China is conducting negotiation on the issues under the RTA with other countries or regions. For example, under CEPA between Hong Kong and Mainland, the measures of trade facilitation are including: promotion of trade and investment, facilitation on clearance, inspection and quarantine on merchandise, food safety, quality standard, electronic business, transparency of law and regulations, cooperation on SME and cooperation on Chinese medicine and pharmaceutical industry. At present, on the aspect of trade facilitation the main measures adopted by China are as follows: 1. To Establish and improve the relevant laws and policies, and increase transparency of laws and policies. Chinese government is gradually improving the relevant laws and administrative rules restricting medium agencies and enterprises on commercial behavior, and supervising the trade legally to promote trade facilitation fundamentally. The government publishes information regularly on laws and policies in Chinese and foreign languages, establishes websites to publish the information and deal with the related problems concerning laws and policies. 2. To simplify the procedures of goods clearance and reducing the time of goods clearance. The new clearance model which means at ports the coordinating mechanism among the related departments, such as custom, inspection and quarantine, foreign currency etc. is establishing. All the departments are using the unified windows to provide facilitated service for firms which need to deal with the governments, agencies for customs reporting, companies of international goods transportation, ports and banks etc. The customs are implementing risk management combining the examination after importing so that under the reasonable and strict supervision of customs, the goods flow could be accelerated. In July 2006, the General Administration of Customs declared that Office of Planning of the General Administration of Customs was renamed as Office of National Port Management to coordinate ports management for companies so as to decrease the cost of clearing customs. 3. On the aspect of inspection and quarantine, China is gradually improving and perfecting the procedures and standards of goods inspection, adjusting and reducing the kinds of importing and exporting goods needed to be inspected and quarantined, simplifying and regulating the procedures of inspection and quarantine, and reducing the related cost in order to promote trade facilitation. 4. As to foreign currency management, according to the requirements of market economy development, Chinese government is continuously adjusting rules and regulations on foreign currency management to facilitate trade and service firms better. More and more new measures regarding receiving and paying of foreign currency have been practiced. For example, some restrict conditions on foreign currency paying for imported goods have been eliminated. 153 Peru – China Free Trade Agreement Joint Feasibility Study 5. On the aspect of entry and departure of business personnel, as a member of APEC, China has established green passageway to business personnel of APEC members. The administration of entry and departure has been in accordance with international practice. For Chinese commercial personnel, passport application has been simplified and time of issuing passport has been shortened significantly, with one week in general. Simplifying entry and departure formalities for enterprise staff improves efficiency gradually. 6. Improving infrastructure to facilitate trade. China is improving its ports infrastructure and its complements. Ports have been equipped with modern instruments to promote trade facilitation. Promoting non-paper clearance, constructing internet connection of relevant authorities, sharing information, and certificating digital credentials with other countries, could supply convenience and safety to trade facilitation. Some of automatic electronic checking systems for customs reporting, and vehicle pathway etc. have fully improved the clearance efficiency. Since 2000, China Customs has provided an easier clearance procedure for large and high-tech enterprises, such as pre-arrival declaration, on-line declaration, fast transit procedure, checking and release on site, urgent clearance, release with deposit and prioritized consultation. Twentyfour-hour clearance, clearance consultation and quality service are also provided by the customs offices. Since August 1, 2001㸪 the sub-system for export exchange collection under "China E-Port" has been fully operated in all customs offices across the country, while in the meantime, China Customs has been wasting no time in securing nationwide application of "China E- Port" and working at ways to implement remote filing and declaration for export draw back. Peru Peru launched its Master Plan for Trade Facilitation (MPTF) in April 2004. The MPTF objective is to provide a basic framework to foster and facilitate trade and to transform Peru into a competitive and export-oriented economy, with more value-added merchandise and services exports. The Master Plan for Trade Facilitation (MPTF) aims to implement effective trade facilitation mechanisms by fostering infrastructure development and enabling access and provision of physical distribution and financial services at better quality and price conditions. It comprises of 6 areas: macroeconomics and tax policy, financing, customs management, road, air and maritime transport infrastructure and services. The MPTF contains 6 general strategies, 17 specific policies, 41 objectives and 152 tasks to be implemented by 23 public sector entities, including Regional Governments and 15 institutions from the foreign trade private sector. Peru is focusing on having a legal framework that allows the application of efficient mechanisms to simplify foreign trade paperwork and procedures, to foster infrastructure development and to improve financial services in terms of quality and price. Among the principal measures to be promoted are: • • • • • • An efficient and permanent dialogue between public and private sectors and the implementation of the agreements reached by them. A public-private monitoring mechanism of the regulatory framework. The incorporation of the private sector in managing the decentralized regulatory and public organizations. The improvement of public officials’ capabilities and promotion of transfer of knowledge. The improvement of the role of Customs as trade facilitator. Fostering development of Peru as a HUB, the creation of Logistic Activities Areas and Platforms, the physical integration with the Andean Community and MERCOSUR members and the development of funding alternatives for foreign trade. 154 Peru – China Free Trade Agreement Joint Feasibility Study • The simplification and standardization of administrative procedures and setting up minimum standards for the provision of logistic services (as the aforementioned FTSW) 5.9 Government Procurement China The implementation of government procurement is an innovation in the field of public consumption. At present, this system is an important component for public consumption management for a vast number of nations, and is playing an imperative role in social and economic lives. To improve government procurement institutions and unify government purchasing market, some international organizations have formulated a few of international lawful documents related to government procurement. Two of them are relatively important--the Government Procurement Agreement (GPA) drafted by the WTO and the Model Law on Procurement of Goods, Construction and Services drafted by the United Nations Commission of International Trade Law (UNCITRAL). GPA is the legal reflection of global government procurement liberalization. It is also one of the results of trade liberalization and economic globalization. Its main purpose is to make institutional arrangement for government procurement around the world. China is a late comer in the practice of government procurement. In the middle of 1990s, in the process of drafting the Invitation and Submission of Bids Law of the People’s Republic of China, the State introduced the method of fair market competition for government procurement. From 1996,pilot programs had been implemented in Shanghai and Shenzhen successively. After 1999, China promulgated some national regulations and rules concerning government procurement. Based on the Budget Law, the Ministry of Finance (MOF) issued the Tentative Measures on Government Procurement Management in April 4, 1999. In June of the same year, the MOF also issued supplementary documents: the Tentative Measures on Supervision of Government Procurement Contract and the Tentative Measures on Invitation and Submission of Bids for Government Procurement. They regulated the supervision rules regarding government procurement, and management and supervision plans during the process of invitation and submission of bids for government procurement. In September 2000, the MOF published the Management Measures on Government Procurement Information Notice and the Items Category on Government Procurement. The former stipulated specifically the means and methods of information publication; the latter provided the criterion for standardized operation regarding government procurement. On June 29 2002, The Government Procurement Law of the People’s Republic of China was promulgated, effective as of January 1, 2003. In July 2006, the MOF launched enforcement investigation and evaluation with respect to government procurement laws and regulations. Generally speaking, these laws and regulations have played positive role in guaranteeing open, fair and impartial behaviors in government procurement, and achieved remarkable economic and social benefits. From 1998 to 2005, the average scale of government procurement in the whole country had increased by 77.9% annually. In 2005, the actual scale of government procurement was RMB 292.76 billion, up 37.1% as the same period in 2004, which accounted for 1.6% of GDP and saved RMB 38.02 billion. Based on primary statistics, government procurement scale in 2006 was RMB 350 billion. According to Article 10 of the Government Procurement Law of the People’s Republic of China, the domestic goods, construction or services should be preferred for all the government procurements in general except otherwise they fall within one of the following situations: 1. Where the goods, construction or services in need cannot be acquired within the territory of the People’s Republic of China or even if acquired but not at arm’s length conditions; 2. Where the procurement items are procured for the consumption in abroad; 155 Peru – China Free Trade Agreement Joint Feasibility Study 3. Other circumstances provided by laws or administrative regulations. The definitions for the domestic goods, construction or services mentioned above should be applied with reference to the relevant regulations approved by the State Council. In General, the Government Procurement Law regulates that the goods, construction or services shall be procured domestically. However, it is not subject to the law if relevant goods, construction or services cannot be acquired within China or are procured for consumption abroad. Although China has not entered the GPA, China has made some beneficial attempts on globalization of government procurement. On May 16, 2006, the first conversation of China and EU on government procurement was held in Beijing. Both sides were satisfied with the communication and cooperation since the establishment of bilateral dialogue mechanism on government procurement, strengthened the importance of regular conversation between China and EU, and agreed that profound development of the conversation mechanism would have a positive impact on deepening bilateral cooperation. Peru The Superior Board of Contracts and Purchases of the State (CONSUCODE) is the managing entity on government procurement in Peru. It exerts its duties nationwide and covers every public entity that conducts any process to purchase goods or services and execute public works. Peru has started to implement completely the use of new tender modalities on government procurement, such as reverse auction, purchases by catalogue and corporative purchases, according to the amendments to Peru’s Procurement Law during year 2004. The goal of these changes is to obtain great savings to the public administration, achieve more efficiency in the procurement system and reduce tendering procedures’ time limits. Also, Peru has begun with the use of electronic means for procurement transactions under the modality of reverse auctions and procurement in the case of minor purchases. Since 2004, the Peruvian Government established that all public entities at all level of government, including public enterprises, must use the Electronic Government Procurement System (SEACE) http://www.seace.gob.pe. This web site constitutes a single entry point for the purpose of enabling suppliers to access information on procurement opportunities in the whole country. Moreover, since 2005, all public entities ought to publish the entire tendering information in this electronic system. In this regard, SEACE constitutes the only official means containing information such as: notices of intended procurement and invitations to tender, tender documentation, including technical specifications and evaluation criteria, awarding of contracts, annual procurement plans, business opportunities and statistic information. This is a public access database and provides information about prices and conditions to participate in a tendering procedure, which can be used as reference for future contracts. SEACE enables to centralize in a single entry point all information concerning procurement opportunities SEACE also includes a business opportunities link that enables registered providers to become acquainted with the information related to their business branch. The system includes an electronic tool to send information to interested suppliers on procurement opportunities, tendering and qualification procedures, according to the business branch of the provider and the object of the contract. Through SEACE, all suppliers (national and aliens), have the same access´ conditions to the detailed information concerning to procurement opportunities with the Peruvian Government. The only requirement to participate in a tendering procedure is to be registered in the National Provider’s Register. Otherwise, as established before, it is prohibited by the Peruvian law that any public entity can establish an individual register system for contractual purposes. Any registered provider under the National Provider’s Register can be excluded or banned from 156 Peru – China Free Trade Agreement Joint Feasibility Study participating in a tendering procedure only by an administrative resolution of CONSUCODE’s Administrative Tribunal. Currently, there is no measure that restricts market access on government procurement to foreign suppliers in a tendering procedure. However, the current regulations establish a 20% bonus over the technical and economic valuation on the tenders comprised by goods and services produced or rendered within Peru. 5.10 Competition Policy China In recent years, the government of China has made great efforts to improve its legislation and enforcement of competition laws and regulations to provide a more transparent and fair competition environment. China has taken effective measures to break industry monopoly and sector blockage to maintain fair competition as stated below: (1) severely punish the abuse of dominant positions, monopoly collusion and mergers which may harm competitions. Great attentions have been paid to such industries as supply of water, electricity and gas; (2) Make research on the measures to deal with large companies who abuse their dominant positions in China; (3) Regarding the countering of unfair competition, Chinese government has severely punished counterfeit of famous commodities of food, medicine, house utensils and agriculture materials, and imitation of the peculiar name, package, decoration and registered trade mark, China also launched the Campaign of “Maintenance of Fair Competition Order and Breaking down Counterfeit and Fraud Activities”, which put emphasis on punishment of brokerage and bribery in medicine, civil aviation, tourism and real estate sectors; (4) Strike on the fraudulent sale with prize or disguised sale with mint prize. Strengthen supervision of online business activities, and punish unfair competition activities online. Recognizing the importance of establishing a normal market economic order to protect the normal operation of economy, and improve the socialist market economic system, China has set up a legal framework to enhance market competition regulations since 1980s, including the Law on Countering Unfair Competition, the Price Law, the Advertisement Law, the Product Quality Law, the Trademark Law, the Patent Law, the Law of Corporation, the Promotion Law of Small and Medium-sized Enterprises, the Temporary Provisions on the Prohibition of Price Monopoly Activities, the Regulations on Telecommunication, etc. In order to further protect fair competition, China has promulgated the Promotion Law of Small and Medium-sized Enterprises of PRC, the Regulations on Administration of Technology Import and Export, the Provisions on Prohibition of Implementation of Regional Blockage to Cigarette Business. The Promotion Law of Small and Medium-sized Enterprises of PRC was promulgated in June 2002, and came into force as of January 1, 2003. This law is to promote the healthy development of small and medium-sized enterprises by establishing a fair competition mechanism. The Temporary Provisions on the Prohibition of Price Monopoly Activities was promulgated in June 2003, and put into effect since November 1, 2003. Its purpose is to promote fair competition, and protect the lawful rights of businessmen and customers by prohibiting price monopoly activities. Antimonopoly is another high point of China’s legislation, since the promulgation of the Regulations on Telecommunication, China has formulated the Temporary Provisions on Foreign Investors’ Merger with Domestic Enterprises, and the Temporary Provisions on the Prohibition of Price Monopoly Activities. The awareness of the necessity of antimonopoly legislation has been greatly improved. The State Tobacco Bureau promulgated the Provisions on Prohibition of Implementation of Regional Blockage to Cigarette Business as of June 1, 2001, in order to break regional 157 Peru – China Free Trade Agreement Joint Feasibility Study blockage, and establish a united, fair and orderly competitive nationwide cigarette market in China. The Anti-Monopoly Law of the People’s Republic of China has been promulgated on August 30, 2007, effective as of August 1, 2008. In addition, China is making efforts to draft the Telecommunication Law, in which provisions on monopoly activities will be stipulated. China is also considering the development of laws and regulations relevant to malfeasance and unfair trade activities. The review of the Law on Countering Unfair Competition is underway. Peru Peru has undertaken major changes which have had a significant impact on the country's development. Many of the most significant changes involved the constitution of a market economy system. Competition policy was formally introduced in 1991, with the enactment of Legislative Decree 701, the Peruvian Competition Law. This legislation is intended to eliminate monopolistic practices, controls and restrictions to competition in the production and distribution of goods and services so as to improve market efficiency and promote consumers welfare. This law is applicable to all economic sectors. Legislative Decree 701 bans all conducts related to economic activities that constitute an abuse of dominance or that restrict, impede or obstruct competition; and adversely impact on general welfare. Currently, it does not have provisions that require prior notifications of mergers or acquisitions. There is another law, Law Nº 26876, which establishes a merger control regime exclusively for the electric sector. Peru has also laws for unfair competition (Decree Nº. 39-2000-ITINCI and 20-94-ITINCI) and competition advocacy that safeguards market access from governmental restrictions (Laws 776, 27322, 28335, and 28996, among others). The National Institute of Defense of Competition and the Protection of Intellectual Property (INDECOPI), created in 1992, is the national competition authority in Peru. Within INDECOPI, there are two quasi jurisdictional bodies that are directly related to the enforcement of the Competition Law: the Competition Commission; and the Competition Chamber, appellate body and final administrative instance. Both, the Free Competition Commission and the Competition Chamber, are independent bodies for case handling purposes. Nevertheless, the Competition Commission must follow the procedural guidelines and mandatory precedents approved and published by INDECOPI. This provides for greater degree of certainty and predictability. INDECOPI enforces the Competition Law in all sectors except for the telecommunications sector; where the sectoral regulator, OSIPTEL, is charge of the enforcement and implementation of the competition policy. OSIPTEL also issues some guidelines with the objective of improve the legal system and the predictability of the procedures conducted on the matter. 158 Peru – China Free Trade Agreement Joint Feasibility Study 6 CONCLUSIONS AND RECOMMENDATIONS China and Peru formally established diplomatic relations on November 2nd 1971. After that, especially in the 21st century, bilateral relations in many aspects have been enhanced significantly. Trade and investment between the two countries have witnessed fast growth in the past few years. In this sense, in order to strengthen their bilateral links, both countries decided to conduct a Joint Feasibility Study on a bilateral FTA. This study would allow to explore the opportunities and challenges that both countries would face and to measure the impact of an eventual FTA; and finally would provide recommendations on the best ways to conduct negotiations between the two countries. For the purpose of this study, China and Peru analyzed each chapter from its own perspective and reached common conclusions and recommendations as following: On Chapter 1: “Introduction”, both countries present information on macroeconomic conditions and on their past and ongoing FTA negotiations. This chapter shows that both countries have strong macroeconomic indicators; for instance, in last few years China’s GDP growth has been around 9%, while in the case of Peru, GDP growth has reached high levels (8% in 2006). Additionally, this chapter shows that China and Peru are following a very active trade agenda, on a bilateral and multilateral basis. On Chapter 2: “Trade and Investment Policies and Systems”, the most important features of the trade and investment policy of each country are briefly described, including tariffs and non-tariff measures, foreign investment regimes, services and trade remedies. For example, the average applied tariff level in China was 9.8% (2006), while in Peru it was 8.04% (July 2007). This chapter would contribute to have a better understanding of each country’s policies and systems. Finally, it also allows the identification of some existing barriers to trade and investment between the two countries, which can be reduced or eliminated through an FTA. Particularly, tariff elimination should be complemented with the removal of unnecessary nontariff measures to improve trade between the two countries. FTA negotiations would improve disciplines in areas such as technical barriers to trade, sanitary and phytosanitary measures, among others. The services sector represents an important share of the GDP of China and Peru. Aiming to promote bilateral trade in services, a possible FTA would serve as an instrument to consolidate and deepen the commitments made in the WTO and to provide a secure and stable environment to current and future investors and service providers in both countries. On Chapter 3: “Economic relations, challenges and prospects between China and Peru”, both countries analyzed statistics on bilateral trade (in goods and services) and investment. This chapter shows that trade flows have experimented steady growth during the last few years. Some trade indexes (RCA, RPC, RIM, RIX and TSC) have also been used to evaluate the characteristics of the actual and potential trade flows between China and Peru. These indexes have shown a significant level of complementarity between the export supply and import demand of both countries. On Chapter 4: “Impacts of trade and investment liberalization”, both countries used general and a partial equilibrium models, in order to assess the impact of a possible FTA between China and Peru. Modeling results show main indicators such as GDP, trade and welfare, will increase in both countries as a result of bilateral full trade liberalization. In the case of China, real GDP will grow 0.04%; particularly, the sectors that would benefit the most are: electronic and telecommunication equipment, transportation equipment, livestock, food industry, tobacco processing and textile industry etc. In the case of Peru, GDP will grow 0.7% and welfare will 159 Peru – China Free Trade Agreement Joint Feasibility Study improve by 0.53%; particularly, the sectors that would benefit the most are: fats and oils of fish, fishing, petroleum and mineral products, fishmeal, agriculture, chemicals, etc. With respect to direct effects on trade, the partial equilibrium models show that in the case of China, trade creation and trade diversion will be 0.61% and 0.81%, respectively; while for Peru they will be 2.2% and 0.55%, respectively. The outcomes of these models suggest that net benefits for both countries can be expected from the negotiation of an FTA, but they also identify possible negative impact on some industries that should be taken into account in the negotiation process. On Chapter 5: “Information Exchange on Other Issues and Economic Cooperation”, both countries elaborated on additional disciplines and institutional issues such as: intellectual property rights, movement of business persons, transparency, trade and investment promotion, small and medium enterprises cooperation, customs procedures, dispute settlement, trade facilitation, government procurement and competition policy. These additional topics can help to promote and facilitate trade and investment between China and Peru; therefore, the above issues would be considered for their inclusion in a possible FTA. In conclusion, this study has demonstrated that significant complementarities exist between the Chinese and Peruvian economies and that an FTA would benefit the people and economies of both countries. To secure these benefits and build on the long and warm relationships between the two countries, this study recommends that negotiations on an FTA between China and Peru covering goods, services and investment, among others, should commence as soon as possible. This bilateral agreement has strategic connotations for each side. In the case of China, it is one of the important ways to strengthen its economic and trade relations with Latin America. In the case of Peru, it is a critical step to strengthen links with leading world countries like China, in order to become a business and productive platform within South America. Taking account of the results of this feasibility study, the two sides recommend announcing and launching negotiations for an FTA after fulfilling their internal procedures. As equal trading partners, this should follow a written commitment by Peru not to apply Articles 15 and 16 of the Protocol on the Accession of China to the WTO and Paragraph 242 of the Report of the Working Group on the Accession of China to WTO. 160