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European Commission

Karel De Gucht

European Commissioner for Trade

Taking EU-Peru Trade Relations to the Next Level

Remarks to the European business community in Peru / Lima, Peru

16 November 2012

Ladies and gentlemen,

We are together this morning at a very important moment for the relationship between Peru and the European Union.

In June of this year we signed a ground-breaking free trade agreement between the European Union, Peru, and Columbia. When approved, it will deliver very significant benefits to all three partners.

It will also lay the groundwork for closer cooperation between the European Union and Peru on a range of global issues.

It is very important that we all do our utmost over the coming weeks, months and years to make sure that we bring the agreement into force, take full advantage of its provisions and use it as a springboard for that closer relationship.

I would like to briefly address each of these steps with you this morning before we spend some time discussing your concerns. But let me first give you a short summary of the case for this deal:

First, economics.

Once the agreement is fully in place, we can expect substantial benefits in terms of growth and jobs.

Market opening is always a powerful driver of economic growth.

That is because it acts in two ways at the same time.

It stimulates demand by providing access to new customers. In Europe, for instance, 30 million jobs across our economy depend on exports.

But open trade also acts on the supply side of the economy. Today's global economy is highly integrated, based on long and truly global value chains. In this context imports – whether of components or raw materials – are vital to companies' ability to compete.

What is more, imports create a more competitive marketplace – meaning businesses have to raise their game if they want to keep playing. That means they are more competitive on international markets. In our own experience in the EU we have seen that a 1% increase in economic openness translates into a 0.6% increase in productivity.

But these are general rules of thumb. What will this agreement mean in concrete terms?

Well, first we will eliminate all customs duties on industrial products and fisheries, on both sides. As the developed partner, the European Union will do this right away, while Peru and Colombia will make use of a 10-year transition period. These moves will mean savings of over 200 million euro for exporters on each side.

Second, tariff savings for farm exports – on products like bananas, sugar, rice and rum – will amount to more than 150 million euro a year when the agreement is fully up and running.

Third, as a 21st Century agreement, the deal also provides clear rules on technical barriers to trade, public procurement, competition policy, regulatory transparency and intellectual property rights.

But perhaps most important is the fact that the agreement will create a stable legal framework for trade between us. This means more certainty for businesses like yours, encouraging deeper economic relationships.

The other case for this agreement is the broader positive effect it will have on sustainable development.

This is partly because improved economic opportunities often go hand-in-hand with strengthened democratic institutions, individual freedoms and the rule of law.

But it is also because all three governments make a clear legal commitment as part of the agreement to democratic government, the protection of human rights and sustainable development. Business, as part of civil society, will have a role to play in making sure that commitment is fulfilled.

But of course we will get none of these benefits unless the agreement enters into force. It is a strength of all three political systems that our parliaments need to approve important international treaties like these. And all three parliaments are looking closely at this deal now.

The European Parliament is coming towards the end of its deliberations on the issue. I expect it will vote on the agreement in early December. I understand that the Peruvian and Columbian Congresses are also similarly advanced. It is important for us to conclude our respective procedures more or less together.

I believe that there will be a majority in the European Parliament for this agreement and I hope there will also be majorities in Lima and Bogotà. I will personally present it next month before European legislators and will do so with the conviction that the agreement so deserves.

Equally, I hope that companies like yours are making sure that everybody concerned, on both sides of the Atlantic understands what is at stake. You are the vehicles through which the benefits of this agreement will be delivered work so you have an important story to tell.

When the deal does go through, the next step will be to make sure that we take full advantage of it.

That means work for governments, to make sure the administrative procedures are all in place. For example, the Peruvian authorities are now working hard to make sure that all the European geographical indications that are covered by the agreement, like Parma ham and Camembert de Normandie, will be properly protected on day one.

It means work for companies too, to make sure they understand what the opportunities are and what they need to do to take advantage of them, particularly if they are entering a new market for the first time.

And it means cooperative work between the private and public sectors. I'd like to share one example of that with you as it is something that the European Union and our Peruvian counterparts are quite proud of.

One of the challenges of this deal for Peruvian exporters is how to meet the high standards of health safety and environmental protection required in the European Union. At the same time, one of the benefits is the ability to sell products that have a high added value into our market of 500 million relatively affluent consumers.

These two issues are relevant for producers of ecological products, which is why the European Union is providing 13 million euro in funding under the Euro-Eco-Trade project. Its goal is to support producers of organic and ecological products like bananas, mangoes, grains and nuts in their efforts to take advantage of the agreement. It will do that by building capacity in government and in the private sector to make sure both that standards are met and that products get proper marketing.

I am very happy to announce that the European commitment has now been signed so we are ready to go on our side. I hope that the Peruvian authorities will soon be signing too.

The final step in the process is to use our new closeness to work together on global objectives.

The European Union and the Peruvian government share much in our approach to economic and social policy. We are both committed to harnessing the power of the market to deliver equitable prosperity for our people.

These principles are the basis for sound international cooperation.

For example, we both have much to fear from any new wave of protectionism linked to the on-going global economic turbulence. It would be a clear threat to our internationally-engaged business model.

So we should both be concerned by recent suggestions of increasing moves in this direction. Earlier this year, my staff in the European Commission found that recent months had seen a startling rise in protectionist policies around the world: 123 new measures, or a 25% rise, in the eight months to June alone.

Combating this trend requires action at home as well as robust enforcement of openness abroad. I know that the EU has a strong partner in Peru on these issues.

We also both have much to gain from progress in the World Trade Organisation. It is certainly disappointing that the main market access pillars of the Doha Round are currently on hold. It is not for lack of effort on Europe's part I can assure you. But there is one area of work where there is real potential for us to move forward over the next year: trade facilitation through streamlined border measures.

There is a broad consensus among developing and developed countries about the benefits of trade facilitation - which could add as much as 68 billion euro a year to world GDP.

That is because the impact of these types of trade costs for business is huge. If an exporter cannot say for certain when his products are going to get to customers then he is going to lose business. If fees are not transparent there is an incentive for the extortion of bribes.

The most important factor in this negotiation is that developing countries have the most to gain, since in general they have more streamlining to do. For example, a WTO study last year found that many small businesses in South America were able to export for the first time when the number of forms required to export small parcels was cut down.

Ladies and gentlemen,

Let me close by addressing what might be seen as an elephant in the room.

Peru has a very strong growth record, with rates of expansion Europeans can only dream about. But recent months have shown that turbulence on international markets is starting to hit demand for its exports, raising concerns for the future.

Not all, but some of that turbulence is due to the difficulties we are having in the Eurozone. So I understand that there is a strong will here that we should sort out those problems.

European leaders understand those concerns. In fact we feel them much more acutely, as Europe has the most to lose from a bad outcome.

But let me reassure you. The European Union is fully committed to taking all necessary measures to move beyond this crisis. There is some way to go yet but I believe that we are already on the home stretch and that we will certainly emerge stronger from this process, with a reformed and more efficient economy. Only last week, the European Commission announced slightly better growth forecasts for 2013 and 2014.

But even before we do reverse the current worrying trends, it is important for our partners to remember that Europe is still today the world's largest economy – the largest importer, exporter, source and recipient of foreign direct investment.

A partnership with the European Union is indispensable for any country with an international trade strategy to speak of.

I know that the Peruvian government understands that very well. I very much look forward to working closely with them to strengthen the links between our economies.

I hope I can also count on your support for that process.

Thank you very much for your attention.


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