Peru-Asia Trade: Lima Goes Seoul Searching

Peru’s August announcement of major economic growth came just before it finalized a massive trade deal with South Korea that could generate billions in export revenue. The free trade agreement (FTA) was signed in Lima by Peruvian President Alan Garcia and South Korean Minister of Trade Kim Jong-hoon just a few months after a similar trade deal was inked with China. Another trade pact with Japan is being finalized and expected to be signed in the near future. Last month’s figures, which showed a staggering economic growth of 10.1 percent in the second quarter of 2010, offered more proof of Lima’s continued red-hot economic rise.

Lima’s FTA with Seoul is expected to significantly increase exports of Korean cars and electronics to Peru while encouraging Korean firms to invest in Peru's abundant natural resources such as copper, silver, zinc, oil, and natural gas. The FTA will cover 25 economic sectors, including goods, services, investment and financial services. It will also result in the elimination, over the course of the next decade, of all tariffs in place between the two countries.

The FTA will immediately affect Peruvian imports of cars by instantly removing all tariffs on South Korean automobiles equipped with 3.0 liter engines (essentially most sedans) or larger. However, the impact on Peruvian exports will likely be felt over time. In 2009, Peru’s exports totaled $26.5 billion. The year prior, exports accounted for 27.1 percent of Peru's GDP, according to the World Bank.  The South Korea FTA agreement is expected to grow Peruvian exports to the Asian tiger from $748.7 million last year to over $7 billion by 2016. Based on those estimates, Seoul could become a major fixture for Peru’s economy and could foreseeably be the destination for billions in exports from Lima within the next few years. The FTA also makes Peru a marketplace for direct competition between South Korea and Japan. Just five years ago, Tokyo accounted for 64.3 percent of foreign cars in Peru, a figure that slipped almost 20 percent to 46 percent in the first half of 2010. Over the same period, exports of Korean cars to Peru jumped from 7.4 percent to 23.6 percent.

Despite this, Lima still retains strong ties to Japan that date back to 1873 and were solidified by successive waves of Japanese emigration to Peru that began in 1899. Today, Peru boasts a Japanese-descended population of nearly 100,000 and in 2009, Lima exported $1.4 billion in goods to Tokyo. Peruvian-Japanese ties are only expected to strengthen with the announcement of a fourth round of FTA talks aimed at finalizing a similar FTA that could be be announced as early as this month.

In March, Peru completed yet another chapter in tighter Asia Ties by concluding an FTA with China. That deal is projected to increase Peruvian exports to Beijing (which totaled $4 billion in 2009) by 17 percent. China is also keen to gain a stronger foothold in the developing world, especially South America, and views resource-rich Peru as a prime opportunity to expand its reach.

On top of trade deals with some of Asia’s economic giants, Peru’s significance to economies in the Western Hemisphere and Europe has grown as well. This summer it became the largest South American exporter of goods to Canada, overtaking neighboring Brazil. Last year, exports from Lima to Ottawa rose 17.3 percent to reach $2.76 billion. Peru also recently began FTA talks with Panama. As exports of its coffee beans continue to surge, Peru made news last month by exporting its first shipments of LNG to Mexico and Canada, putting the country in the company of only 17 other countries with the ability to produce and export LNG. Lima also made headlines last week by announcing it had become to world’s foremost producer of silver, reflecting the country’s growing capacity to extract precious resources and develop its vast mineral reserves.

Learn More:

• The Asia Pacific Economic Cooperation provides details on the commercial relationship between Peru and Asia-Pacific countries.
• The World Bank offers key economic indicators and data about Peru as well as a detailed map of the country.
• The Embassy of Peru in Japan provides details of the economic relationship between Peru and Japan.
• The Embassy of Japan in Peru provides details about Japan economic ties to Peru.
• The Peruvian Government hosts a Foreign Investment Website about commerce in Peru.
• The U.S. Department of Foreign Affairs and Trade features a Peru Economic Fact Sheet.