As you have probably recently read or heard, the US Congress House of Representatives recently approved a “Free Trade Agreement” with Peru, popularly known here as the TLC (Tratado de Libre Comercio). The Treaty now has to be ratified by the Senate, which will probably occur in early December, and then be signed by the President.

Essentially the objective of this Agreement is to create a “free trade zone” between the US and Peru, eliminating all obstacles to free commercial interchange between the two countries. This will both give US firms exporting to Peru access to a larger market, and for the Peruvian exporters it will open access to the world's largest economy.

The Agreement will give both countries progressive reduced customs fees and eliminate all governmental measures that have any implications to the cost of accessing the market.

The primary objective is to benefit those products that are “exportable” and benefit consumers in both countries with reduced costs on all products.

The Agreement also incorporates matters relating to telecommunication, finance, professional services, construction, software, etc. Also included are governmental acquisitions and purchases, as well as intellectual protection, and compliance with certain labor regulations as well as environmental requirements.

Certain restrictions do apply, since the production of what is exported to the other country must be produced in the origin country almost entirely, and if there is a certain portion of the merchandise produced in a third country, it must be in a very reduced amount.

At the same time, the reduction in Customs charges are in a large part gradual. For example, in certain products (such as agricultural products), customs charges are scaled over a number of years, while charges regarding other products such as textiles, are immediate.

What does all this mean for the consumer here in Peru?

It will mean that a large number of products “made in the US” will soon cost a lot less. These include household appliances, trucks, and even some autos, while others will gradually start to reduce in price. It may take up to 6 months to implement the Agreement but you can expect to see certain “US Made” products start to drop in price in 2008.

Peruvian manufactured or grown products will start to increase significantly in volume and many industries that have been waiting for confirmation of the Agreement will start making significant investments in enlarging their capacity.

There are a number of US firms that have been sitting on the sidelines waiting to see if the Agreement would get approval, and now will move ahead with large planned investments, that will create jobs and increase the Peruvian economy.

Look for the the Peruvian economy to grow even more in 2008 as a result of the FTA (TLC).