RESTRICTEDWORLD  TRADE
ORGANIZATIONWT/TPR/S/69
28 April 2000
(00-1588)
Trade Policy Review Body
TRADE POLICY REVIEW
PERU
Report by the Secretariat
This report, prepared for the  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 the Government of Peru on its trade
policies and practices.
Any technical questions arising from this report may be addressed to
Mr. J. Suárez (tel. 739 54 53) or Mr. R. Valdés (tel. 739 53 46)
Document WT/TPR/G/69 contains the policy statement submitted by the
Government of Peru.
Note: This report is subject to restricted circulation and press embargo until the end of the meeting
of the Trade Policy Review Body on Peru.Peru WT/TPR/S/69
Page iii
CONTENTS
Page
SUMMARY OBSERVATIONS vii
(1) I NTRODUCTION vii
(2) E CONOMIC AND INSTITUTIONAL ENVIRONMENT vii
(3) T RADE POLICY DEVELOPMENTS viii
(4) S ECTORAL POLICY DEVELOPMENTS ix
(5) T RADE POLICY AND FOREIGN TRADING PARTNERS ix
I. ECONOMIC ENVIRONMENT 1
(1) I NTRODUCTION 1
(2) E CONOMIC POLICY AND DEVELOPMENTS 1
(i) Economic performance and structure 1(ii) Fiscal policy 5(iii) Monetary policy 5(iv) Balance of payments 6
(3) D
EVELOPMENTS IN TRADE 7
(i) Merchandise trade 7
(ii) Trade in non-factor services 8
(4) D EVELOPMENTS IN INVESTMENT 12
(5) O UTLOOK 12
II. TRADE POLICY REGIME:  FRAMEWORK AND OBJECTIVES 15
(1) I NTRODUCTION 15
(2) T RADE POLICY FORMULATION AND IMPLEMENTATION 15
(i) General legal and institutional framework 15(ii) Trade policy objectives and formulation 16(iii) Main trade laws and regulations 16
(3) F
OREIGN INVESTMENT REGIME 17
(4) I NTERNATIONAL RELATIONS 18
(i) World Trade Organization 18(ii) Preferential agreements 19(iii) Other arrangements 23
III. TRADE POLICIES AND PRACTICES BY MEASURE 24
(1) O
VERVIEW 24
(2) M EASURES DIRECTLY AFFECTING IMPORTS 25
(i) Procedures 25(ii) Customs valuation and rules of origin 26(iii) Tariffs 27(iv) Other charges affecting imports 34(v) Import prohibitions, restrictions, and licensing 35
(vi) Contingency measures 36WT/TPR/S/69 Trade Policy Review
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(vii) Regulations, standards and other technical requirements 39
(viii) Government procurement 42
(3) M EASURES DIRECTLY AFFECTING EXPORTS 43
(i) Procedures 43(ii) Export taxes 44
(iii) Export restrictions 44
(iv) Duty and tax concessions directly linked to exports or export performance 45(v) Export finance, insurance and guarantees 46(vi) Export promotion and marketing assistance 46(vii) Measures implemented in foreign markets 46
(4) O
THER MEASURES AFFECTING TRADE 47
(i) Competition policy 47(ii) State trading, state-owned enterprises and privatization 48
(iii) Free zones and other special fiscal zones 49(iv) Incentives 50(v) Adjustment assistance 52
(vi) Trade-related investment measure and local-content requirements 53
(vii) Regional and other programmes 54(viii) Intellectual property rights 54
IV. TRADE POLICIES BY SECTOR 57
(1) I
NTRODUCTION 57
(2) A GRICULTURE 58
(i) Main features 58
(ii) Policy objectives and instruments 60(iii) Indicators of assistance 62
(3) F
ISHING AND RELATED PROCESSING ACTIVITIES 63
(4) M INING AND ENERGY 65
(i) Mining and mineral processing 65
(ii) Energy 67
(5) M ANUFACTURING 69
(6) S ERVICES 73
(i) General features 73(ii) Financial services 76
(iii) Telecommunications 78
(iv) Transport 81(v) Other services 83
BIBLIOGRAPHY 84
APPENDIX TABLES 87Peru WT/TPR/S/69
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CHARTS
Page
I. ECONOMIC ENVIRONMENTI.1 Merchandise trade by partner, 1994 and 1998 9
I.2 Merchandise trade by product, 1994 and 1998 10I.3 Cumulative FDI by sector and by origin, 1992-99 13
II. TRADE POLICY REGIME:  FRAMEWORK AND OBJECTIVES
II.1 Trade with LAIA and Andean Community countries, 1994-98 20III. TRADE POLICIES AND PRACTICES BY MEASUREIII.1 Variable specific duties:  AVEs and prices, August 1993 – August 1999 31IV. TRADE POLICIES BY SECTOR
IV.1 Effective tariff protection in manufacturing, 1997 69
IV.2 Shares of manufacturing GDP, 1998 71
TABLES
I. ECONOMIC ENVIRONMENT
I.1 Gross domestic product by sector, 1994-99 2
I.2 Economic performance, 1994-99 3
I.3 Basic social indicators 4I.4 Balance of payments, 1994-99 7I.5 Trade in non-factor services, 1994-99 11I.6 Net foreign investment flows by sector, 1993-99 14
II. TRADE POLICY REGIME:  FRAMEWORK AND OBJECTIVES
II.1 Peru's average preferential tariff for LAIA and Andean Community countries 21
III. TRADE POLICIES AND PRACTICES BY MEASUREIII.1 Summary analysis of Peru's tariff 28
III.2 Peru's tariff items bound at rates other than 30% and their applied rates, August 1999 32III.3 Structure of charges on imports of selected products in Peru, August 1999 34
III.4 Anti-dumping and countervailing actions taken by Peru, January 1995-December 1999 36
III.5 Reviews by the Commission on Technical and Trade Regulations of potential non-tariff 39
restrictions, 1993-99
III.6 IPR-related legislation in force in Peru 54
IV. TRADE POLICIES BY SECTORIV.1 Agricultural production, 1994-99 58
IV.2 Recorded trade in main agricultural products, 1998 59
IV.3 Producer subsidy equivalent by main product, 1991-97 61WT/TPR/S/69 Trade Policy Review
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IV.4 Fishing sector:  selected indicators, 1994-98 62
IV.5 Mineral mining:  selected indicators, 1994-99 65IV.6 Energy:  selected indicators, 1994-99 67IV.7 Trade and applied tariffs in manufacturing sector, 1998 70IV.8 Summary of Peruvian commitments under GATS 73
IV.9 Peru's financial sector:  selected indicators, 1994-99 75
APPENDIX TABLES
I. ECONOMIC ENVIRONMENT
AI.1 Non-financial public sector and central government operations, 1994-99 87
AI.2 Merchandise imports by origin, 1994-98 88
AI.3 Merchandise imports by product, 1994-98 89AI.4 Merchandise exports by product, 1994-98 90AI.5 Merchandise exports by destination, 1994-98 91
II. TRADE POLICY REGIME:  FRAMEWORK AND OBJECTIVESAII.1 Peru's notification under the WTO Agreements (as at 15 February 2000) 92
AII.2(a) Average tariff with Andean Community countries, as at July 1999 94
AII.2(b) Average tariff with principal Latin American Integration Association partners, 96
as at July 1999
III. TRADE POLICIES AND PRACTICES BY MEASUREAIII.1 Goods exempt from preshipment inspection 98
AIII.2 Goods and services subject to the ISC 100
AIII.3 Goods exempted from the General Sales Tax 101
AIII.4 Transactions exempted from the General Sales Tax 103AIII.5 Prohibited imports 104AIII.6 Restricted imports, September 1999 105AIII.7 Products subject to phytosanitary and zoo-sanitary requirements 106Peru WT/TPR/S/69
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SUMMARY OBSERVATIONS
(1) INTRODUCTION
Peru's generally open trade and investment
regimes have remained relatively stable sinceits previous Trade Policy Review in 1994.  The
continued consolidation of earlier, far-
reaching reforms has paid off during the last
six years in the form of significant growth in
GDP, employment, trade, and foreigninvestment, as well as in improved social
welfare indicators.  In the context of the
Uruguay Round, Peru consolidated within the
WTO many of its unilateral liberalization and
economic reforms, and has subsequentlyenacted or amended domestic regulations to
ensure implantation of its multilateral
obligations.  Peru's trading partners have thus
benefited from growing market access for their
merchandise exports and services suppliers.
A still relatively modest GDP per capita (some
US$2,500 per person), which in real terms isno higher than in the mid 1960s, highlights the
need for Peru to achieve higher rates of
growth.  Eliminating remaining impediments
to greater economic efficiency would be of
crucial importance in this regard both byenhancing the international competitiveness of
Peruvian producers and exporters, and by
making Peru more attractive as an investment
destination.  A fresh round of reforms might
include further customs simplification, moreeven and predictable tariff protection, the
elimination of minor remaining local-content
or export performance requirements, and
greater transparency in support programmes.
Current support for certain agriculturalactivities is out of line with the principle of
sectoral neutrality.  Pressing forward the
privatization and concession programmes
would create new opportunities for private
investments and inject greater competition in
the domestic market.
(2) ECONOMIC AND INSTITUTIONAL
ENVIRONMENT
GDP grew at an average annual rate of 5.6%
during 1993-99.  Growth, however, has tendedto oscillate, with 1998 in particular registering
an important slowdown, due mainly to a series
of exogenous shocks.  Inflation has been
brought down, and stronger external balances
have allowed international reserves to rise to
comfortable levels.  Regaining investorconfidence, through the normalization of
relations with external creditors and debt
restructuring, has also been an importantingredient of Peru's economic recovery.
In the wake of the economic reforms of the
early 1990s, trade and investment flows have
increased substantially.  Between 1994 and
1998, total recorded merchandise trade grewat an average annual rate of 8.5%.  Peru's
export supply is concentrated in primary and
semi-processed products, mainly from mining
and fishing activities, and is exposed to sharp
fluctuations both in terms of volume (outputvariations) and earnings (price variations).
Trade in non-factor services has also grown
substantially since Peru's previous Review,
driven by the economic liberalization process
and in parallel with rising merchandise trade.The stabilization process and the
establishment of a legal framework for the
promotion and the protection of investment
has seen the stock of foreign direct investment
increase five-fold since 1993.
There have been no significant changes to the
general structure of trade policy formulation
or implementation since Peru's last Review.The sectoral regulatory framework has also
remained relatively stable, after earlier, wide-
ranging reforms led to the comprehensive
liberalization of sectoral investment rules and
an ambitious privatization programme thatsaw the State withdraw from many production
activities particularly during 1994-96.
Investors are offered additional incentives
through "law stability agreements",
conditional on meeting minimum investment,job creation or export performance criteria.
The competition policy framework continues to
be developed with a view to ensuring that
consumers benefit from the liberalization
process.  Aware of the interlinkages and theneed for consistency between competition
policy and protection of intellectual propertyWT/TPR/S/69 Trade Policy Review
Page viii
rights and the use of contingency measures,
responsibility for all three areas has beengiven to a single agency, INDECOPI.
(3) T
RADE POLICY DEVELOPMENTS
The aim of Peru's trade policy is to liberalize
the trade regime so as to provide non-
distorting incentives that allow an efficientallocation of resources and foster the
development of economic activities according
to market signals.  Consistent with this aim,
Peru uses tariffs as its main instrument of
border protection.  The average applied MFN
rate was 13.6% in 1999, down from some 16%
in 1993.  The tariff is based on a two-level advalorem structure applied on the c.i.f. value of
imports.  In 1997, the two main rates were
reduced to 12% and 20% (from 15% and
25%);  simultaneously, tariffs on some 300
agricultural products were increased from15% to 20%.  Some 84% of all tariff lines are
subject to the 12% duty rate.  The entire tariff
is bound but the wide margin between applied
and bound rates (generally 30%) may
undermine the predictability of the tariffregime.
Some 330 tariff items involving agricultural
products receive additional protection through
a 5% or 10% tariff surcharge.  Of these, 23
items are also subject to variable specificduties intended as a price stabilization and
protection mechanism.  In early 2000, these
duties affected five product groups:  milk,
maize, sorghum, rice, and sugar (also wheat
products until 1998).  As, in effect, variable
specific duties provide open-ended ad valorem
protection, concerns arise about their useundermining predictability, distorting
production and possibly leading to the breach
of tariff bindings.
Peru's basic import formalities have remained
essentially unchanged since its previousReview and in the main appear to be
straightforward. Preshipment inspection,
introduced in 1992 to prevent under-valuation,
is still in use although the range of goods
covered has been reduced.  Peru receivestechnical assistance to implement the WTO
Agreement on Customs Valuation, and wasgranted a waiver to delay full implementation
until April 2000.  Both preferential and non-
preferential rules of origin are applied, the
latter in relation to contingency measures.
Non-tariff barriers to trade appear generally
low.  Anti-dumping measures have been usedsparingly, with only nine measures in force in
early 2000, the majority affecting non-WTO
exporters;  there are no countervailing or
safeguard measures in force.  Peru maintains
local-content requirements in relation tovarious government nutrition programmes, as
well as a trade-related investment measure in
dairy.  A number of provisions favour
domestic suppliers in government
procurement, which is governed by a moretransparent regulatory framework introduced
in 1997.  Peru is not a member of the WTO
plurilateral Agreement on GovernmentProcurement.
Regional, sectoral, and social policies make
use of fiscal incentives whose scope and
complexity raise some concern, although
amounts involved are relatively small.  Freezones and other special fiscal zones are
largely used for regional development
objectives but seem to have fallen short of
their goals;  fiscal exemptions provided under
the CETICOS scheme established in late 1996are conditional on export performance.
Preferential credit to selected sectors is
available from the national development bank,COFIDE.
Peruvian exports appear to receive limited
direct government support.  Peru's drawback
regime refunds 5% of the f.o.b. value of the
good exported regardless of the actual amountof duties paid on imported inputs.  Export
restrictions apply on guano, rough wood and
certain animals.  Visas are required for textile
exports to the United States, with export
restraints on cotton towels.  Under the WTOAgreement on Textiles and Clothing, the
European Union applies quotas to Peruvian
exports of cotton yarns and fabrics.  A number
of non-tariff measures implemented in foreign
markets (e.g. sanitary and phytosanitarymeasures) may also hinder certain other
Peruvian exports.Peru WT/TPR/S/69
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(4) SECTORAL POLICY DEVELOPMENTS
Since its last Review, Peru has continued to
pursue a sectoral policy approach that
emphasizes neutrality of incentives across
activities.  Nevertheless, a small number of
activities are still favoured through specialfiscal incentives or tariffs.
In the agricultural sector, liberalization and
reductions in state assistance initiated in the
early 1990s have resulted in difficult
adjustments which, nevertheless, underliestrong output expansion directed at both
domestic and foreign markets.  However, the
concentration of various border and internal
support mesures in a limited range of favoured
products (certain crops and dairy products)may well hinder further gains by misallocating
labour, land, and capital resources at the
expense of other activities.  Driven by
international demand, production of coca leaf
and derived products still appears sizeable
albeit declining.
Peru has a revealed comparative advantage in
certain fishing and mineral products, which
together typically account for some 60% of its
total merchandise exports.  Peru has a large
fishing industry which is, however, highly
cyclical and suffers from apparently policy-induced over-investment and over-fishing.
Peru's strategy to attract local and foreign
private investment has been particularly
successful in the mining industry, which has
regained its leading role in the economy.Mining and energy attracted just over one
third of total direct foreign investment into
Peru during 1992-99.
Besides the processing of mineral, agricultural
and fisheries products, manufacturingactivities make only a small contribution to
Peru's economy;  these activities have
experienced extensive restructuring from
increased import competition.
The Peruvian State used to be a major
supplier of services, including in financial,
transport, and telecommunications activities,but such involvement has decreaseddramatically since the mid 1990s.  In parallel,
foreign access to Peru's services market
has mproved markedly.  The ambitious
privatization programme and the general
policy of promoting private investment has
induced important structural changes in mostservice areas.  With respect to privatized
public services, the Peruvian authorities are
seeking to establish a strong regulatory
framework in particular to prevent the abuse
of dominant positions in service marketswhere competition is limited by technical
constrains.
(5) T
RADE POLICY AND FOREIGN
TRADING PARTNERS
Through its participation in the WTO and
regional initiatives, Peru has tried to enhance
access to international markets so as to
generate economies of scale and
specialization.  While welcoming the
strengthening of the multilateral trading
system and increased transparency and
predictability that followed the conclusion ofthe Uruguay Round and the establishment of
the WTO, the Peruvian authorities have noted
that in some areas actual results have not met
expectations.  In their view, this is particularly
the case in sectors such as agriculture,textiles, and clothing, and in respect to new
disciplines for the adoption of anti-dumping
measures.
Peru ratified the Marrakesh Agreement
Establishing the WTO in December 1994,which is an integral part of the Peruvian
legislation.  Peru has enacted or amended
various domestic regulations to harmonize
them with its international obligations and
thus facilitate their application, in particularin the area of intellectual property rights.  As
a result of the Uruguay Round, Peru bound its
entire tariff, compared with previous bindings
on only 460 lines.  Peru grants at least MFN
tariff to all partners.
Under the WTO's General Agreement on
Trade in Services (GATS), Peru undertookhorizontal commitments with respect to
movement of natural persons and treatment ofWT/TPR/S/69 Trade Policy Review
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foreign investment;  although these
commitments apply only to sectors included in
its GATS Schedule, in practice Peru's
legislation grants similar market access across
most service activities.  Sector-specific
commitments cover 7 out of 12 broadcategories of services.  Reflecting Peru's
legislation, market access and national
treatment for services supplied through
commercial presence (i.e. treatment granted
to foreign investment) has been in generalfully committed.  Peru's commitments in
telecommunication services are particularly
comprehensive, with all services bound except
for the granting of national treatment in
relation to the presence of natural persons.
In parallel with its participation in the
multilateral trading system, Peru  takes part inregional integration schemes within the
Andean Community and the Latin American
Integration Association, as well as in the Asia-
Pacific Economic Cooperation forum and the
negotiating groups of the Free Trade Area of
the Americas.  Despite Peru's long-standingparticipation in the regional integration
processes within Latin America, the share of
reciprocal preferential trade in total trade
remains relatively modest.  In addition to the
negotiated schemes, Peru benefits fromincreased market access to several countries
under Generalized System of Preferences
schemes, including under the special regimes
granted by the European Union and the
United States to promote alternatives to cocacultivation and production.  According to the
Peruvian authorities, these schemes have
resulted in substantial export diversification.