Fresh Opportunity for Rural Peru

by Amrietha Nellan

 

Peru is one of the best performing economies in Latin America thanks in large part to major structural reforms promoting trade liberalization and free trade agreements. Since the 2009 U.S.-Peru Trade Promotion Act, Peru has outperformed the region averaging 5.84% annual GDP growth. These changes have helped Peru’s economy shift from goods to services, now contributing nearly 60% of GDP indicative of a maturing, more developed economy. However, it is important to spur growth in other sectors to share economic gains more broadly.

 

This is a concern for Peru, where almost a quarter of the population still lives in poverty concentrated in Peru’s rural, agricultural districts with a high indigenous population. Peru’s existing trade relationships are inadequate in alleviating this urban-rural disparity since they heavily favor growth in the service sector rather than agriculture. But the TPP improves the distribution of economic growth by making unprecedented reductions to the trade barriers on agricultural products and adding new markets for Peruvian goods.

The TPP leads the way in its commitment to promoting sustainable economic growth by increasing labor and environmental standards, making those standards enforceable, and cutting tariffs on traditionally protected industries like agriculture. The TPP cuts thousands of tariffs on agricultural products traded between the twelve TPP countries, ensuring that Peruvian agriculture exports are more competitive abroad. These tax cuts create immediate and substantial benefits for Peru’s rural farmers. For example, the U.S. will eliminate the tariff on Peru’s largest vegetable export, asparagus. Peru can reap this economic gain on agricultural exports with six existing trade partners also parties to the TPP, and enjoy an even wider margin of benefit with the other five countries in the deal.

The TPP includes five countries with whom Peru does not have existing trade agreements, opening brand new markets for its exports. Peru’s closer economic parity with three of those countries (Vietnam, Malaysia, and Brunei) create even more fertile ground for agricultural exports. Studies find that a much higher share of trade between developing countries is made up of agriculture, accounting for approximately a third of total trade. Peru estimates a “growth of $2.25 billion in agro-industrial exports to these five markets” after the TPP goes into effect.

But increasing exports is not just about growth, it translates directly to higher wages. Trade agreements between developing countries tends to benefit the poor because of gains to unskilled real wages, especially in agriculture. When countries like Vietnam eliminate 66% of tariff lines on Peruvian mangoes and grapes, Peru’s rural agricultural workers will have the demand to sustain their livelihoods, increase wages, and help lift them out of poverty.

The TPP represents a chance for Peru to capitalize on new market opportunities for its agricultural sector and expand to new countries in one of the fastest growing regions of the world. For Peru, agreements like the TPP are a crucial ingredient in their fight to expand opportunity to the most marginalized members of society, reduce poverty, and narrow the urban-rural divide.