VZCZCXYZ0000
RR RUEHWEB
DE RUEHPE #3518/01 2992031
ZNR UUUUU ZZH
R 262031Z OCT 07
FM AMEMBASSY LIMA
TO RUEHC/SECSTATE WASHDC 7213
INFO RUEHBO/AMEMBASSY BOGOTA 5210
RUEHQT/AMEMBASSY QUITO 1540
RUEHLP/AMEMBASSY LA PAZ OCT SANTIAGO 1562
RUEHBR/AMEMBASSY BRASILIA 7636
RUEHBU/AMEMBASSY BUENOS AIRES 3149
RUEHCV/AMEMBASSY CARACAS 0855
RUEHME/AMEMBASSY MEXICO 3581
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RHEHAAA/NATIONAL SECURITY COUNCIL WASHINGTON DC
RHMFIUU/DEPT OF ENERGY WASHINGTON DC
RUEHRC/DEPT OF AGRICULTURE WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASH DC
UNCLAS LIMA 003518
SIPDIS
SIPDIS
DEPT FOR WHA/AND, EB/IEP
COMMERCE FOR 4331/MAC/WH/MCAMERON
TREASURY FOR MMALLOY
USTR FOR BHARMON AND MCARRILLO
E.O. 12958: N/A
TAGS: ETRD ECON EFIN PGOV ENRG EAGR USTR PE CI
SUBJECT: PERU LOWERS TARIFFS AGAIN, UNILATERALLY
1. Summary: The Government of Peru (GOP) unilaterally lowered its
tariffs again, to a 5.8 percent average tariff, from the previous
8.0 percent and over 60 percent in the mid-1990s. The GOP will
likely continue this trend, reinforced by the prospect of
ratification of the U.S.-Peru Trade Promotion Agreement (PTPA), and
prospective FTA talks with Canada, the EU, China, and Singapore.
This tariff measure on capital goods, agricultural, construction,
industrial, transportation, and consumer products is, like the
previous measures, proof of the GOP's commitment to its "apertura
commercial". The government's main motivation is to improve
resource allocation and competitiveness in consumer spending. But it
also hopes the increased imports would reduce the appreciation
pressure on the Nuevo Sol against the depreciating U.S. dollar.
Imports reached US$1.8 billion, continuing a 44 month positive flow.
Polls show strong support among consumers and business for these
reductions, though some local industries have expressed concern over
specific products, notably cement. End Summary.
ZERO DUTIES ON ALMOST HALF OF TARIFF LINES
------------------------------------------
2. The Ministry of Economy and Finance (MEF) announced on October
13, 2007, reductions in tariffs for 4,148 Customs codes out of a
7,351 total codes in its Tariff Schedule, or 56 percent of its
Tariff Schedule. As a result, Peru now imposes no duties on 48.5
percent (3,568 codes) of the items in its tariff schedule, covering
some intermediate agricultural goods, parts, and capital goods not
produced locally, liquefied petroleum gas, non-locally-produced
capital goods, intermediate goods, parts, wheat and wheat flour. It
is important to note that these items represent 62.51 percent of
Peru's imports in 2006.
3. The current four-tier duty structure includes a 9 percent duty,
applied on 37.0 percent (2,718) of the Customs codes, mainly
consumer goods; some locally produced capital goods; intermediate
goods; some pork meats; some corn, barley, and malt products;
preparations for child food products; beer; and liquor. In
addition, a 17 percent duty is applicable on 14.3 percent of import
items (1,052 codes), covering mostly textiles; footwear; household
electrical products; coffee; and some other agricultural products;
and a 20 percent duty on 0.2 percent of the items (13 codes)
covering bovine meats and their derivatives.
LOWERING PRICES FOR CONSUMERS
-----------------------------
4. The mean tariff is now 5.8 percent, down from 8.0 percent, while
the weighted average (using 2006 imports) is 2.3 percent compared
with 3.8 percent. The Minister of Economy and Finance Luis Carranza
noted that the reduction in tariffs of food products, inputs and
capital goods will directly impact the consumer price of these
products, resulting in increased competitiveness for Peru's economy,
productivity increase and general wellbeing, while hoping that the
increased imports would alleviate the strength of the Nuevo Sol
against the U.S. dollar. The 25 percent duty on 62 codes has been
eliminated.
POLLS SHOW STRONG SUPPORT FOR TARIFF REDUCTION
--------------------------------------------- -
5. The most recent poll conducted by El Comercio, national
newspaper, indicates that the Peruvian population favors a reduction
in tariffs and taxes on imports. Specifically, the results of the
poll show approximately 69 percent of those polled support a
reduction for wheat, rice, and sugar; 61 percent support a reduction
for clothes; and, 63 percent support a reduction in domestic
electronics. The National Confederation of Private Business
Associations (CONFIEP) supports the reduction in tariffs; however,
the association questions the manner in which the GOP has announced
the tariff reductions. CONFIEP criticizes the GOP for taking
action, figuratively, "in the middle of the night." CONFIEP has
also voiced concern regarding the reduction of cement to 0 percent.
Another major business chamber, the Foreign Trade Society of Peru
(COMEXPERU) strongly supported the GOP's action. Most local
economists polled by the local news also voiced support for the
reductions.
CRITICS: LOW COST CEMENT FROM COLOMBIA?
----------------------------------------
6. Two major business chambers, the National Society of
Manufacturing Industries (SNI) and the Exporters Association (ADEX),
strongly opposed the tariffs reduction, and called upon the GOP to
reconsider the measure. The SNI president went as far as to state
that, if the measure is not revoked, the manufacturing industries
labor force would decrease by 6 percent and it's GDP by 15 percent
in 2008. Observers say the SNI's main objection is also the prospect
of imported low price cement from Mexico through Colombia. With
Peru's construction boom in full swing, economists note that the
foreign competition could kill local cement manufacturers' chances
of windfall profits. Other more minor problems are specific textile
lines.
IMPORTS INCREASE AT RECORD RATES
--------------------------------
7. Foreign purchases continue to increase in Peru, up overall to
41.3 percent in September. Imports of capital goods and
construction materials lead at 59.0 percent, followed by raw
materials and intermediate products at 36.1 percent and finally
consumer products at 29.2 percent. In September, imports of
industrial capital goods such as telephones, industrial machinery,
and parts/accessories, increased by 56.8 percent and for
agricultural capital goods, such as tractors, brooders, shovels by
57.9 percent. Raw materials and intermediate products included
mostly minerals, wheat, yellow maize, and non-food farm products and
chemical products for the textile sector, paper and cardboard.
Under consumer products the 29.2 percent increased can be divided in
between durable (31%) and non-durable goods (27.9%). Durable goods
included mostly new vehicles and televisions from Mexico and China.
In the transportation sector, imports have increased by 77 percent
for commercial vehicles.
U.S. DOLLAR CONTINUES TO DECLINE AGAINST SOL
--------------------------------------------
8. The U.S dollar continues to weaken against the Peruvian Nuevo
Sol. Over the past year the exchange rate between the U.S. dollar
and the Nuevo Sol has decreased from 3.25 in October 2006 to nearly
3.017 in October 2007. Just during the month of September the U.S.
dollar has depreciated from 3.172 Nuevo Soles to almost 3.017 as of
October 4. This rate of exchange reaches levels similar to those of
August 1998. The Central Reserve Bank continues to intervene
heavily in the local exchange market to support the dollar. The
bank has purchased nearly $6.46 billion so far this year.
COMMENT: PERU OPENS TO GLOBAL ECONOMY
-------------------------------------
9. The Garcia Administration entered office in June 2006 with the
unstated goal to continue President Toledo's policy to make Peru a
more competitive nation in the international economy. The GOP's
economic team's pursuit of this goal is reflected in their policies
to further reduce tariff rates and pursue trade agreements with
numerous foreign governments including Canada, China, European
Union, Mexico, Singapore, Thailand, and the United States. The
current policies show how far Peru has come in the last two decades;
a country that for twenty years had an economy reaching only 20
percent of the international market. Today, the rate is about 50
percent, but the goal, as delivered in a public message by Economy
Minister Luis Carranza, is to reach 70-80 percent of the
international market by the end of Garcia's term.
MCKINLEY