PERU SIGNS "PARTIAL" FTA WITH THAILAND

UNCLAS SECTION 01 OF 02 LIMA 004969

SIPDIS

SENSITIVE

DEPT FOR WHA/AND, WHA/EPSC, EB/TPP/ABT
TREASURY FOR OASIA/INL
COMMERCE FOR 4331/MAC/WH/MCAMERON
USDA FOR FAS/ITP/GRUNENDFELDER
BANGKOK FOR TRADE OFFICER

E.O. 12958: N/A
TAGS: ETRD ECON EAGR PGOV PREL PE
SUBJECT: PERU SIGNS "PARTIAL" FTA WITH THAILAND

REF: A) LIMA 3554 B) 04 LIMA 5481


1. (U) Summary. After over a year of negotiations, the GOP
signed an "early harvest" free trade agreement with Thailand
on November 19 during the APEC Conference in Busan, South
Korea. The agreement covers approximately 70 percent of
products exported by the two countries, but does not cover
sensitive products including rice, sugar and poultry.
According to the Ministry of Trade, Peru expects to ink a
final and more complete agreement with Thailand by mid-2006.
End Summary.

Details of the Agreement
--------------


2. (U) President Alejandro Toledo and Thai Prime Minister
Thaksin Shinawatra signed an "early harvest" trade pact on
the fringes of the Asian-Pacific Economic Cooperation (APEC)
forum on November 19, after more than a year of
negotiations. The trade accord is not a comprehensive
document, only covering approximately 70 percent of the two
countries' products. As expected, sensitive agricultural
products - rice, sugar and sugarcane, and some poultry and
fish products - are excluded. Although the agreement is
limited, the GOP is heralding it as the first step toward a
comprehensive Free Trade Agreement (FTA) with Thailand.


3. (SBU) According to Julio Chang, APEC Director at the
Ministry of Trade, the GOP will continue negotiations with
Thailand for a comprehensive FTA. He expects negotiations
will conclude by mid-2006, enabling the governments to sign
a completed Peruvian-Thai FTA by August 2006. Chang
indicated his concern that discussions on sensitive
agricultural products will decelerate FTA talks.

Why Thailand?
--------------


4. (SBU) The GOP continues to push for closer economic
ties with Asia; several Ministry of Trade officials have
informed us that they believe the way into Asia - namely
China - is through the smaller countries, such as Thailand
and Singapore. Thailand is Peru's largest trading partner
in Southeast Asia; trade between the two countries was $69.1
million in 2005 (through September). Peru exported over $30
million in goods to Thailand in 2004, which accounted for
0.2 percent of Peru's total exports. Principal products
included zinc, copper, and fishmeal. Peru imported $9.8
billion in goods in 2004, 0.4 percent of which came from
Thailand. Imports included light trucks, manufactured goods
such as ovens, microwaves, and refrigerators, and polyester
thread/fabric.


5. (SBU) Although the majority of sensitive items excluded
from the FTA are agricultural products, the GOP continues to
state that the FTA with Thailand will benefit Peru's
agricultural sector. Chang noted that exports of fruit
(grapes),asparagus, onions, paprika, and coffee should
increase under and FTA. During the signing ceremony,
President Toledo promised that the FTA would generate $500
million in export earnings and generate 300,000 new jobs.

Comment
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6. (SBU) The GOP attempted to take center stage at the APEC
Summit by signing the partial FTA with Thailand, only to be
surpassed by the signing of the Chile-China FTA. While the
"early harvest" agreement marks Peru's first trade accord
with an Asian country, we expect that Peru's defensive
position on sensitive agricultural products may limit its
ability to conclude a comprehensive agreement. Peru's
negotiators may want to focus on concluding negotiations on
sensitive agricultural issues in the U.S.-Andean FTA before
they shift their focus to Thailand.
STRUBLE