Peru-China Trade Ties Strengthen Despite Political Crisis

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In the 12 years since Peru and China signed a free trade agreement (FTA), the Latin American country has had six presidents. It has also known many social conflicts: in October of this year alone, there were 198, of which 129 were classified as “socio-environmental” by the Ombudsman’s office. At the same time, trade between Peru and China has gradually increased, experiencing only a drop in imports and exports in 2020, due to the Covid-19 pandemic.

Roberto Sánchez, Peruvian Minister of Foreign Trade and Tourism, told Diálogo Chino that since the entry into force of the FTA in 2010, trade with China has more than doubled. “This growth has enabled Peru to diversify its export basket to this market, with more than 700 new products exported, 96% of which came from the non-traditional sector, such as metal products, chemicals and textiles,” said he said, adding that more than 1,500 new exporting companies are involved in the trade, 74% of which were “micro” or small businesses.

“With these results, we can reaffirm that the FTA has enabled us to consolidate Peru’s presence in Asia,” said Sánchez.

Pedro Castillo, who became president at the end of July, announced his intention to maintain good relations with China. “China is a strategic partner for Peru in terms of trade and investment,” he said in October, at the inauguration of the Canton Fair, an international trade event in Guangdong, China.

In November, on the occasion of the 50th anniversary of the establishment of diplomatic relations between the two nations, Castillo stressed that China “is our main trading partner” and that the ties between the two countries have strengthened “since we have improved our relationships on a global level. strategic partnership», A high diplomatic status that China confers on selected international partners.

Shortly after Castillo took office, Chinese Ambassador to Peru Liang Yu had more than ten face-to-face or virtual meetings with members of the cabinet, including heads of the Foreign Ministry, the ministry. Economy and Finance, and Foreign Trade and Tourism. He also met with the president himself on August 30.

Celebrating 50 years of diplomacy, the ambassador said the two countries not only seek to “improve” their FTA, but also signed a memorandum of understanding under the “Belt and Road” initiative. They are also cooperating on Covid-19 vaccines: Peru has bought millions of vaccines from Sinopharm.

Yet Castillo’s positive messages on trade relations with China collide with his somewhat contradictory messages on private relations and foreigner investment in the country. He recently announced a second land reform and called for the nationalization of assets such as the Camisea gas plant in the southern region of Cusco, creating considerable uncertainty.

Peru and China: a question of numbers?

The 2009 FTA between Peru and China – with its 17 chapters and 12 annexes – was the first comprehensive trade agreement that the Asian country signed with a developing country. It covers goods, services and investments.

In 2011, China moved the United States as the main destination for Peruvian exports. Almost a decade later, in December 2020, Ambassador Liang Yu noted that the FTA “has served as a locomotive for the development of economic and trade relations between China and Peru, and has helped bilateral trade take great leaps.”

Denisse Linares de Derecho, Ambiente y Recursos Naturales (DAR), a Peruvian NGO that has followed the renegotiation of the Peru-China FTA, said the relationship can be viewed positively: “We have paved the way for an exchange with one of the strongest countries in terms of trade. However, she adds that “this relationship was not accompanied by productive diversification”, that is to say, by abandoning dependence on raw materials. “It can benefit China, but not us.”

Did you know…?

Copper accounts for over 60% of Peru’s exports to China

In 2019, mining products represented well over 80% of total exports to China, and copper alone accounted for more than 60%. 2020 boasted of an equally dominant profile for mining, despite pandemic disruptions and movement restrictions, as operations were granted a special waiver to continue.

After the UK, companies based in China are now the biggest investors in Peru’s mining sector, with investments of more than $ 15 billion, according to the Department of Energy and Mines. The list is long, but the main projects include Las Bambas, in the Apurímac county, and Toromocho in Junín. Both are copper mines. Peru is the second largest producer in the world.

Significant Chinese investments have also been made in the energy, electricity, fisheries, finance and infrastructure sectors. Among the most notable projects is the mega-port of Chancay, north of the capital, Lima, which is being built by a consortium led by Chinese state-owned Cosco Shipping Ports (with some $ 3 billion in investment) ; exploration of gas on lot 58 in the department of Cusco by the China National Petroleum Corporation (CNPC, $ 4.4 billion); and the Amazon Waterway, an initiative involving the Chinese company Sinohydro, which is said to have invested US $ 95 million. The Chinese Three Gorges Company (CTG) has also acquired stakes in the Chaglla and Luz del Sur hydropower plant, Peru’s largest electricity distribution company.

Linares of DAR says projects such as the Port of Chancay and the Waterway have had problems with environmental impact assessments. Likewise, social conflicts have erupted in mining projects in the country, such as Las Bambas, where dialogues between communities and mining companies are In progress.

Beyond traditional exports, the FTA has opened a market for Peruvian agricultural products. “Obviously, about 95% of our shipments to China are minerals and fish. But excluding that from the analysis, the 5% that we send to China that is not traditional [goods] have experienced very steady growth, ”Rafael Zarich, director of economic studies at Comex Peru, one of the country’s main professional associations, told Diálogo Chino. “The FTA started in 2010, and in the case of agriculture, it [the value of exports] went from $ 30-35 million to almost $ 200 million. Zarich indicates that the blueberry and grape export market has been consolidated by the FTA.

This relationship has not been accompanied by productive diversification. It may benefit China, but not us

Beatriz Salazar, of the Peruvian Center for Social Studies, told Diálogo Chino that the increase in agricultural products is positive, especially that of high-value goods. However, she cautioned against “negative externalities”, including the environmental impacts of this agricultural growth: “In terms of water, coastal aquifers are overexploited, and in terms of biodiversity, large areas of the coast are a single harvest ”.

“We must not only pay attention to the quantity of products exported, their value, but also their sustainability, to ensure that they do not have hidden negative externalities,” Salazar stressed.

Ana Romero, from the Peruvian Network for Globalization with Equity, said, “There is no benefit to the people where these investments are located. In agro-export, we see that the issue of water, and its exacerbated use, harms surrounding areas.

Does the FTA need an environment chapter?

In November 2016, China and Peru agreed to “optimize” the the. Negotiations started in April 2019 and in October 2019 Lima hosted the fourth round of talks. Rules of origin, customs procedures and trade facilitation, global supply chains, intellectual property, investment, competition policy, trade in services and e-commerce were all in order of the day – but not the environment. Then came the pandemic and the talks broke down.

Trade Minister Roberto Sánchez told Diálogo Chino that in the current context it has not been possible to organize a new physical meeting, but the two teams continue to coordinate virtually.

For Linares, Salazar and Romero, the agreement cannot omit an environmental chapter.

Regarding the possibility of including a section dedicated to the environment, Sánchez said that the agreement “already contains a very comprehensive chapter on cooperation between the two countries, which addresses mechanisms related to environmental issues”.

“The Peru-China FTA has led to the establishment of specific frameworks in which the two countries can work together on environmental issues, and it is important to note that in 2016, an“ Environmental Cooperation Agreement ”was signed between the Ministry of the Environment and the Chinese Ministry. of Foreign Affairs, aimed at promoting cooperation in the field of environmental protection and sustainable management of natural resources, ”Sánchez added.

Mónica Núñez, a professor at the Universidad del Pacífico specializing in environmental governance and the sustainability of Chinese investments in Latin America, said that China and the international market are increasingly adopting sustainability standards applicable to different industries, which are voluntary, but as the market progresses. these guidelines become the new standard. “Various Chinese sectors and guilds investing abroad are increasingly adopting these guidelines,” she said.

Linares, however, believes the parties should insist on an environmental chapter in the FTA because of the amount and nature of Chinese investments in Peru. China, she adds, has published a list of investments that it will not support if they fail to meet environmental standards. “We are at a time when we can take advantage of the fact that China is ready to do better.”


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