Peru-China Free Trade Agreement

UNCLAS SECTION 01 OF 02 BEIJING 001592 STATE PASS USTR SIPDIS SENSITIVE TAGS: ETRD EINV EIND PREL EFIN CH PE SUBJECT: Peru-China Free Trade Agreement ¶1. (SBU) Summary. During the late April visit to China by Peruvian Vice President Giampietri, China and Peru signed a comprehensive free trade agreement which covers goods, services and investment and is expected to go into effect by the end of this year. Giampietri also promoted Chinese investment in Peru during his visit. Currently, China's most significant investment in Peru is in the mining sector, in which Chinese companies have committed to invest $7.4 billion over the next 5 years. Peru might be interested in pursuing a currency swap agreement with China but has not yet begun discussions. The Peru Free Trade Agreement -------------- ¶2. (U) Peru and China began negotiating a Free Trade Agreement (FTA) in January 2008 and reached an agreement in November 2008. After completing legal reviews of the agreement, Peruvian Vice President Luis Giampietri signed the agreement in Beijing April 27th. The FTA is still awaiting ratification by the Peruvian Congress but Peruvian Emboffs expect it will be passed by the end of this year. ¶3. (U) The FTA is China's first comprehensive FTA with a Latin American country, including goods, services and investment. (The Chile-China FTA included only goods). In the agreement, 62 percent of trade tariffs will be immediately eliminated and others will be phased out over periods of between 5- 17 years. Peru protected its textile and shoe industries by obtaining agreement to maintain key tariffs for up to 17 years. China, in turn, obtained similar treatment for agricultural and wood industries products. Peru curious about currency swap agreement -------------- ¶4. (SBU) According to Peruvian Emboffs in Beijing, Peru is looking for additional trade financing and is considering the option of a currency swap agreement with China. They are hoping that this might give them access to more financing but do not yet fully understand the mechanism and are researching it. Looking for more Chinese investment -------------- ¶5. (U) Chinese investment was also on the Peruvian Vice President's Beijing agenda. On the second day of his visit, he attended a presentation of investment opportunities in Peru at the Chinese Ministry of Commerce. As part of its privatization efforts, Peru is offering concessions on airports, ports and trains. However, there was not much interest from Chinese companies, who are more keen on construction projects or natural resources, the Peruvian emboffs said. The Chinese companies lack overseas operational experience and are not interested in building and operating concessions, they added. PRC mining companies to invest $7.4 billion -------------- ¶6. (U) Vice President Giampietri also met with executives from some of China's top metals and mining companies already invested in Peru: Shougang (Capital Iron and Steel),Chinalco (China Aluminum), Minmetals and Zijing. On May 11, Peru's La Republica reported that these four companies plan to invest $7.4 billion in Peru over the next five years. Many of these investments are financed by China Development Bank and China's EXIM Bank. EXIM Bank is planning to open an office in Peru. Chinese Mining companies improving their image -------------- BEIJING 00001592 002 OF 002 ¶7. (SBU) The first significant Chinese investment in Peru was Shougang iron mines venture in 1994. According to the Peruvian emboffs, Shougang has consistently had problems with Peru's mining labor unions and continues to be unpopular with Peruvians. Other Chinese companies have learned from Shougang's experience and are now more conscious of social responsibility and environmental issues, helping to slowly improve China's image in Peru.