PeruWT/TPR/S/189
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WorldTrade
Organization / RESTRICTED
WT/TPR/S/189
12September 2007
(07-3784)
Trade Policy Review Body
TRADE POLICY REVIEW
Report by the Secretariat
PERU
This report, prepared for the third Trade Policy Review of Peru, has been drawn up by the WTO Secretariat on its own responsibility. The Secretariat has, as required by the Agreement establishing the Trade Policy Review Mechanism (Annex 3 of the Marrakesh Agreement Establishing the World Trade Organization), sought clarification from Peru on its trade policies and practices.
Any technical questions arising from this report may be addressed to MrKarstenSteinfatt (Tel.: 022 739 67 59), Mr Mario Berrios (Tel.:0227396397) and MrRaymundo Valdés (Tel.: 022 739 53 46).
Document WT/TPR/G/189 contains the policy statement submitted by Peru.

Note:This report is subject to restricted circulation and press embargo until the end of the first session of the meeting of the Trade Policy Review Body on Peru.

PeruWT/TPR/S/189
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CONTENTS

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SUMMARY OBSERVATIONSvii

(1)Economic Environmentvii

(2)Trade and Investment Policy Frameworkvii

(3)Market Access for Goodsviii

(4)Export Measuresix

(5)Other Measures Affecting Tradeix

(6)Sectoral Policiesx

I.Economic environment1

(1)Overview1

(2)Macroeconomic Trends1

(i)Structure of the economy, growth and employment1

(ii)Fiscal policy4

(iii)Monetary and exchange rate policy6

(iv)Balance of payments8

(3)Trends in Trade and Investment Flows9

(i)Trade in goods9

(ii)Trade in services10

(iii)Foreign investment11

(4)Outlook11

II.trade and Investment regime13

(1)Overview13

(2)Overall Legal Framework13

(3)Trade Policy Formulation and Objectives14

(4)Foreign Investment Regime15

(5)International Trade Relations17

(i)World Trade Organization17

(ii)Preferential agreements18

(iii)Other agreements and arrangements21

III.trade policy by measure23

(1)Overview23

(2)Measures Affecting Imports24

(i)Customs procedures24

(ii)Customs valuation27

(iii)Rules of origin28

(iv)Tariffs29

(v)Other charges34

(vi)Quantitative restrictions, controls and licences35

(vii)Anti-dumping, countervailing and safeguard measures37

(viii)Technical regulations and standards40

(ix)Sanitary and phytosanitary measures43

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(3)Measures Directly Affecting Exports45

(i)Registration and documentation45

(ii)Other charges46

(iii)Quantitative restrictions, controls and permits46

(iv)Subsidies, charge and tax concessions and free zones47

(v)Financing, insurance and promotion48

(4)Other Measures Affecting Production and Trade49

(i)Legal framework for business49

(ii)Price controls and competition policy50

(iii)State trading, State-owned enterprises and privatization53

(iv)Incentives53

(v)Government procurement57

(vi)Intellectual property protection60

IV.trade policy by sector63

(1)Overview63

(2)Agricultural Sector64

(i)General features and objectives of the policy64

(ii)Border measures65

(iii)Other measures67

(3)Fishing69

(4)Mining, Excluding Hydrocarbons71

(5)Hydrocarbons, Including Those Derived From Petroleum74

(6)Manufacturing77

(7)Services79

(i)Main features79

(ii)Telecommunications81

(iii)Financial services84

(iv)Air transport89

(v)Maritime transport91

(vi)Professional services95

REFERENCES99

APPENDIX TABLES103

TABLES

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I.ECONOMIC ENVIRONMENT

I.1Main economic indicators, 2000-20062

I.2Structure of GDP by expenditure, 2000-20063

I.3Transactions in the non-financial public sector, 2000-20065

I.4Leading monetary indicators, 2000-20067

I.5Balance of payments, 2000-20068

I.6Trade in services, 2000-200610

III.TRADE POLICY BY MEASURE

III.1Principal origin criteria under the preferential agreements signed by Peru29

III.2MFN tariff structure, April 200730

III.3Summary of MFN tariff, April 200731

III.4Prohibited imports, March 200736

III.5Anti-dumping and countervailing measures, 2000-200638

III.6Main elements of CETICOS and ZOFRATACNA, March 200754

III.7Participation in agreements on intellectual property protection, December 200660

IV.TRADE POLICY BY SECTOR

IV.1Selected indicators in the agricultural sector, 2000-200664

IV.2Selected indicators in the fishery sector, 2000-200670

IV.3Selected indicators in the mining sector, 2000-200672

IV.4Selected indicators in the hydrocarbons sector, 2000-200675

IV.5Structure of GDP in the manufacturing sector, 2000-200578

IV.6Structure of the financial sector, December 200684

APPENDIX TABLES

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I.ECONOMIC ENVIRONMENT

AI.1Merchandise imports by product, 2000-2006105

AI.2Merchandise exports by product, 2000-2006107

AI.3Merchandise imports by trading partner, 2000-2006109

AI.4Merchandise exports by trading partner, 2000-2006110

II.TRADE AND INVESTMENT REGIME

AII.1Selected notifications to the WTO, April 2007111

III.TRADE POLICY BY MEASURE

AIII.1Tariffs according to Peru's preferential agreements, April 2007114

AIII.2Goods and services subject to the Selective Consumption Tax (ISC), March 2007117

AIII.3Import restrictions, March 2007118

AIII.4Anti-dumping duties adopted by Peru, January 2000 – June 2006121

AIII.5Countervailing duties adopted by Peru, January 2000 – June 2006124

AIII.6General aspects of intellectual property right protection, 2006 125

IV.TRADE POLICY BY SECTOR

AIV.1Summary of Peru's commitments under the GATS128

PeruWT/TPR/S/189
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SUMMARY OBSERVATIONS

  1. Peru has continued to liberalize its trade regime since its last Review in 2000, mostly through unilateral initiatives. In the context of broader structural reform, trade liberalization has allowed Peru to reap the benefits of a favourable external environment, and helps explain Peru's robust economic performance since 2000. However, Peru has also moved away from its largely uniform tariff structure, thus increasing the level of effective assistance to some sectors. Additional selective assistance has also been granted through several fiscal incentives, some of which are contingent upon the use of domestic inputs or domestic processing requirements.
  2. The current favourable economic environment presents an opportunity to inject greater competition into the domestic market and to set up a more uniform incentive structure by rationalizing assistance schemes. In addition, further reform, including of some services sectors, would help reduce remaining bottlenecks, in particular those arising from poor infrastructure. Using multilateral commitments to advance and lock-in such reforms, the way Peru did so successfully in the mid 1990s, would help to sustain current rates of economic growth and to provide a secure basis on which to further spread the benefits of liberalization and continue reducing poverty.

(1)Economic Environment

  1. Peru's real GDP increased at an annual average rate of 4.8 per cent during 2000-06, notwithstanding a marked slowdown in 2001. This solid growth was fostered by prudent macroeconomic management and the implementation of structural reforms sustained over many years. Peru conducts monetary policy within an inflation targeting framework, while fiscal policy is implemented with reference to quantitative targets set by law. Inflation has been low, the fiscal position has improved, and public debt has fallen. A favourable external environment, which has facilitated the expansion of trade and investment, has also contributed significantly to Peru's good economic results in recent years.
  2. Exports of goods and services expanded at a real annual rate of 8.3 per cent over 2000-06; the equivalent rate for imports was 7 per cent. As a result, the share of merchandise trade in GDP increased from 27per cent in 2000 to 41 per cent in 2006. These increases have been accompanied by changes in both the composition and direction of trade. The share of minerals in total exports has risen markedly, particularly since 2003, reflecting higher commodity prices and export volumes. Although the United States and the European Communities continue to be Peru's main trading partners, accounting together for around 37 per cent of Peru's trade, the relative importance of partners in Asia and Latin America has increased.
  3. Notwithstanding the economy's robust performance in recent years, Peru still faces significant challenges due, inter alia, to the lack of adequate infrastructure, excessive regulation, and deficiencies in the system of public security and justice administration. Formal unemployment remains sizeable and most of the labour force is engaged in the informal sector. Moreover, although the proportion of the population living in poverty has fallen, it remains high, at around 45 per cent.

(2)Trade and Investment Policy Framework

  1. Peru is an original Member of the WTO. It accords at least MFN treatment to all its trading partners. It participated in the extended negotiations on telecommunications and financial services. Peru has not taken part in any of the WTO plurilateral agreements but is in the process of acceding to the Information Technology Agreement.
  2. During the period under review Peru presented numerous notifications to the WTO, although by mid 2007 a small number remained outstanding in areas such as domestic support to agriculture. Peru has been involved in the dispute settlement mechanism in 14 cases, two as a complainant, four as a respondent (involving consultations only), and eight as a third party. In the context of the Doha Development Agenda, Peru has made a number of proposals on issues such as agriculture (tropical and alternative products to illicit crops); fisheries subsidies; intellectual property (biodiversity and traditional knowledge); and services (movement of natural persons).
  3. Peru's trade policy is formulated predominantly at the national level, taking into account its international commitments. Peru gives high priority to the conclusion of free-trade agreements, and has concluded three such agreements since its last Review. By mid 2007, Peru had in force comprehensive FTAs with MERCOSUR members, and agreements of a narrower scope under LAIA. FTAs with Chile and with the United States have also been signed but are not yet in force. The agreement with the United States is of particular importance as this is the principal destination for Peruvian exports. It is important for Peru to consolidate its preferential liberalization at the multilateral level in order to prevent distortions, and to give greater predictability to its trade and investment regime.
  4. The Peruvian Constitution guarantees equal treatment to national and foreign investment, except within 50 kilometres of international borders. However, there are specific laws that impose restrictions on foreign participation in maritime services, air transport and broadcasting services. Although the Constitution also establishes that natural resources are an inalienable State property, concessions for their exploitation may be granted to private investors.
  5. The Constitution allows the State to act against other countries' protectionist or discriminatory measures that affect the national interest by adopting equivalent measures. Based on this provision, laws in the financial and maritime transport sectors require that foreign investment be subject to the reciprocity principle.
  6. During 2000-06 Peru continued implementing an ambitious privatization programme, which generated about US$1billion. By end 2006, there were about 50 firms with state participation, mainly in the services sector.

(3)Market Access for Goods

  1. Peru's solid economic performance has been accompanied by a process of liberalization and modernization of its trade regime. The average applied MFN tariff rate decreased, from 13.6 per cent in 1999 to 8.2per cent in April 2007, reflecting tariff reductions on capital goods and inputs not produced in Peru. However, in reducing tariffs, Peru has moved away from the relatively uniform tariff structure it maintained during the 1990s, increasing the level of effective tariff protection in some sectors. All tariffs are ad valorem; those applied on 46tariff agricultural lines are subject to reductions or surcharges linked to variations in world prices.
  2. Peru has bound its entire tariff schedule, mostly at 30 per cent. While this enhances predictability, further progress in this direction could be made by reducing the prevailing gap of some 22 percentage points between average applied and bound rates.
  3. In the context of its participation in the Andean Community, Peru grants duty-free treatment to all products originating in Bolivia, Colombia, Ecuador, and Venezuela. Peru also grants tariff preferences to Chile, Cuba, MERCOSUR, and Mexico, although their scope varies greatly.
  4. Peru has adopted a number of trade facilitation measures. As a result, customs clearance times for goods subject to physical or documentary inspection have decreased by 30 per cent since 2002. Around 35 per cent of imports are subject to such inspections at the main customs facilities. Peru eliminated pre-shipment inspection in May 2004. In addition to tariffs, imports valued at S/. 10,350 (around US$3,250) or more are subject to a customs fee levied on a specific basis.
  5. In general, imports receive national treatment in the application of internal taxes. However, the beverage Pisco is subject to an excise tax (ISC) at a specific rate of S/.1.50per litre (some US$0.47 per litre) while the minimum ISC rate applied on other alcoholic beverages is 20 per cent. Used vehicles are subject to ISC at a rate of 30 per cent but are zero rated if they are imported for repair and conversion in a transformation, industry, commercialization and services centre (CETICOS) or in the Tacna free trade zone (ZOFRATACNA), and subsequently introduced into Peruvian territory. Certain services rendered to domestic flag vessels are exempt from value-added tax (IGV).
  6. Peru prohibits the importation of beverages manufactured abroad under the name "Pisco", used clothing and footwear for commercial purposes, and used motors and parts for road vehicles. Several goods are subject to authorization to preserve health, the environment, or national identity.
  7. There has been a significant increase during the review period in the number of anti-dumping investigations, which have focused mostly on a handful of products and exporters. As at end 2006, 34 anti-dumping measures and one countervailing duty were in force. Peru has applied two provisional safeguard measures to WTO Members during the review period.
  8. Peru has maintained an active programme of notifications under the Agreement on Sanitary and Phytosanitary Measures; all of Peru's SPS measures were based on international standards. There is a limited number of technical regulations in force; as a general rule, compliance with them is not verified at the border. Peru has established a system to ensure that new and existing regulations in general are not more trade restrictive than necessary.

(4)Export Measures

  1. Peru does not apply charges or taxes on exports. A few export prohibitions on wood, and plants and plant products are in place, mostly to promote local processing and investment, control access to genetic resources, or protect the environment.
  2. Peru maintains a "simplified" duty drawback scheme, under which exporters receive 5 per cent of the f.o.b. value of their exports or half of their production cost, whichever is less. This simplified regime provides no mechanism to ensure that the amount given back to exporters does not exceed the actual value of duties paid.
  3. In mid-2005, Peru eliminated the export requirements for granting benefits under the CETICOS or ZOFRATACNA programmes.

(5)Other Measures Affecting Trade

  1. Peru continues to maintain a number of incentive programmes to promote business activity and investment. The incentives, many in the form of fiscal exemptions, seem to create a burden on public finances. It would thus be important to identify the incentives that result in net benefits for the economy and to consider rationalizing of the others. Peru took an important step in this direction at the beginning of 2007 with the establishment of a general framework that regulates the granting and the renewal of fiscal incentives.
  2. Competition policy, intellectual property protection, and trade remedies are the responsibility of a single authority (INDECOPI). In view of the valuable potential synergies this arrangement creates across, it would be important to build up the institutional strength of such authority.
  3. Peru is not a member of WTOPlurilateral Agreement on Government Procurement. Since 2000, important changes have been made to the regulatory framework on government procurement. Peruvian legislation grants a 20 per cent preference margin to bidders that use Peruvian goods; and certain programmes (e.g. food aid) require that only domestic food products be acquired. Although these measures could promote national production, they also result in higher costs for tax payers.
  4. Peru has notified the WTO of its legislation for the protection of intellectual property, which was reviewed by the TRIPSCouncil in 2001. Peru also presented answers on compliance issues in the context of the TRIPS Agreement.

(6)Sectoral Policies

  1. The value of agricultural production has increased every year since 2000, albeit at a lower rate than the economy as a whole. Exports of agricultural products tripled between 2000 and 2006. However, productivity in various segments is low. At 14.9 per cent, average tariff protection in agriculture (WTO definition) is twice as high as in other sectors. A 50 per cent reduction in income tax is available to some agricultural producers that use domestic inputs. Official support to agriculture also consists of measures to facilitate access to credit and debt reduction programmes. The legal limits on the use of imported inputs for the production of liquid milk and derived products are not applied in practice.
  2. The fisheries sector contributes significantly to exports (about 8 per cent of total exports in 2006). Peru's legislation does not limit foreign ownership of fishery enterprises, processing plants, or aquaculture operations. However, foreign flag vessels may be granted fishing permits only to the extent that this supplements the activity of the Peruvian fleet. Certain tax benefits and reductions in the price of fishing permits are contingent upon unloading the catch in Peru.
  3. Mining and hydrocarbon output has increased significantly in recent years, reflecting a sharp rise in investment. Between 2000 and 2006, the share of mining exports (minerals, non-ferrous metals, and fuels) in total exports increased from 55 per cent to 72per cent. In mid 2004 Peru introduced mining royalties, and since end 2006 it has encouraged mining firms to make contributions for social and infrastructure projects. Holders of mining concessions have benefited from sector-specific tax stability contracts. Exports of natural gas from the proven reserves of Peru's largest field (Camisea) are subject to ability to meet forecast demand for 20 years.
  4. Average tariff protection on manufactured products is 7.2 per cent, down from 13 per cent in 1999. This reduction has been accompanied by a significant increase in labour productivity. However, manufacturing activities related to dairy, grain mill products, clothing, and footwear benefit from effective tariff protection levels between 30 per cent and 50 per cent.
  5. Perumade commitments in 7 of the 12services sectors under the GATS. It signed the Fourth Protocol on Basic Telecommunications, accepted the Reference Paper on regulatory principles in telecommunications, and signed the FifthProtocol on Financial Services. In the context of the Doha Development Agenda, Peru presented an initial services offer in 2003 and a revised offer in 2005.
  6. The liberalization process in the telecommunications sector has continued since Peru's previous Review, although one private firm still controlled some 95 per cent of all fixed telephone lines at the end of 2006. Nevertheless, tariffs have tended to fall and service quality to improve. Since Peru's previous Review, the sector's legal framework has undergone substantial changes aimed at, among other things, facilitating entry for new operators. Foreign participation in radio broadcasting services may not exceed 40 per cent of the capital stock or of stakeholders.
  7. Consolidation of the banking sector continued during the period under review, particularly as a result of problems that affected the sector in 2003 and that led the authorities to carry out a precautionary intervention of certain financial institutions. Prudential indicators for the banking sector have improved since then, and credit has increased in recent years. In case of closure of a foreign bank, the assets of the Peruvian branch must be used first to compensate Peruvian creditors and foreigners resident in Peru. Peru maintains a tax on financial transactions at a rate of 0.08 per cent on the value of each deposit and withdrawal from a bank account; the tax is set to be reduced according to an established schedule.
  8. In the transport sector, important regulatory progress has been made since 2000 but problems related to infrastructure persist in certain activities. In maritime transport, cabotage services are reserved to national flag vessels with majority Peruvian ownership. A minimum of 25 per cent of the volume of hydrocarbons transported in national routes is reserved for Peru's navy. Although the law establishes freedom of routes, the reciprocity principle may be applied to foreign trade cargoes. In 2005, Peru adopted a law to grant incentives for the development of the national merchant marine; however, this is awaiting the adoption of regulations.
  9. In air transport, up to 49 per cent foreign participation is allowed at the start of operations by firms established in Peru, which may be increased to 70 per cent after sixmonths. Peruvian firms that provide regular international air transport services are required to provide a similar national service.
  10. There are 22 regulated professions in Peru, for which registration in a professional association is required. Professionals with diplomas issued by foreign institutions must validate their degrees in order to practice in Peru. Each professional association establishes specific requirements for the validation of foreign degrees. Engineers with foreign degrees may offer their services temporarily without having to validate their diplomas. This possibility is not available for lawyers or accountants.