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The Process of Opening Peru for TradeTuesday, April 27, 2010 > 10:42:01
(Living in Peru – Manuel Quindimill, AmCham Peru)
Although the Peruvian Trade Promotion Agreement (PTPA) has been only with us for a year, it has already benefited the country.
Besides the new import clearance procedure, it has also left us with an intangible capital: our country cannot leave aside the need to adapt itself to the international context, in order to remain competitive in the medium and long terms.
Following a static analysis, a new General Customs Law has been accomplished (via DL N° 1053), with an Advance Customs Clearance which will result in lower logistical costs and financial benefits due to the import rights payment deferral. However, this achievement does not mean our country’s trade facilitation agenda is over. Without going into the debate between those who say Peru’s foreign trade is either completely wrong or manna from heaven, it is pertinent to analyze our actual position as well as our short, medium and long term destination.
The World Bank’s recent report on the Logistic Performance Index 2010 is useful to spell out Peru’s current situation on the matter. From a total of 155 surveyed countries, our country ranks number 67. In a descending order, this modest score comprises the following subjects: international shipments (93rd), timeliness (79th), logistics quality and competence (71st), tracking and tracing (70th), Customs (64th) and infrastructure (56th).
Being at the lower half of the table is an inescapable fact. Moreover, this survey could be backed by another World Bank report, the “Doing Business 2010”, which ranks us number 91 for Trading Across Borders –a 7 position improvement from a year before. Furthermore, we cannot be content by the fact that we rank 65 out of 121 participants in the Enabling Trade Index 2009, from the World Economic Forum.
At first glance, we might conclude that Peru comes from behind in the international context. It may very well be that it has a firm policy towards achieving market openness and integration with the international community through trade agreements; however, we must make up for several years of unforegone policies. A necessary premise to take into account is that the task is not easy and that there are countries just like ours that are competing to be more efficient in international trade. We must not go too far to find one: Colombia stands out both in the implementation of the Single Window System and port facilitation.
We can judge our competitiveness if we take a quick glance at the Enabling Trade Index, which considers we have competitive advantages in: access to local and foreign markets, highlighting our export/import procedures (effectiveness and efficiency in freight clearance, export/import costs); good regulatory practices in enabling foreign investments; ease at hiring foreign workers; and good control of capital and foreign direct investment. On the other hand, Peru’s weaknesses reside on: efficiency of customs administration; time and amount of documents necessary to export/import; the use of information technology; some regulatory deficiencies (property rights, corruption, undue influence, government inefficiency and the lack of domestic competition); and physical security, which manifests itself in the low reliability of police services and high business costs of crime, violence and terrorism.
Among the levels in which we can improve, the very own Peruvians surveyed by the World Bank’s Logistic Performance Index 2010 manifested that: port (85.71%) airport (71.43%) tariffs are high or too high; moreover, they all coincide in the very low quality of rail and highway infrastructure, whilst 57.14% believe Peru has a poor port infrastructure. When considering the quality and competence of certain services, air transport (33.33%), sea transport (28.57%), freight forwarders (42.86%) and customs agencies (40%) stand out with a low acceptance. With regards to processes efficiency, there is a common consensus that the export clearance process functions properly, whilst only 50% answered positively about import freight clearance.
Likewise, only 25% of those polled answered favorably with regards to the level of transparency of customs clearances. Notwithstanding, Peruvian trade operators obtain a good grade, thanks to the way logistics have been handled in Peru since 2005. Nobody doubts the improvements in transport infrastructure and the use of information technology, which many consider an important progress in custom clearance procedures and logistical services provision from the private sector. This last fact indicates the existence of an effort to enhance trade facilitation policies.
Similarly, we encounter a horizontal problem from the very own State, since several efforts are required to catch up from all those years our economy was left behind. It must be a joint effort not only coming from Customs, the Ministry of Commerce and Tourism, Ministry of Transport and Communications, Interior Ministry and several other decentralized public organizations, but from the Peruvian private sector.
It is certainly clear that trade facilitation policies should not pertain only to the Customs Agency; on the contrary, it should be open to all State levels if it is to show the expected results. In any case, it is very important for the Peruvian Customs to recover the main role it had in the 1990’s (it should be noted that the World Bank considered it as a world example) and to overcome the point it is currently in.
Apart from analyzing the different topics linked to trade facilitation, it is more important to emphasize the actual implementation of those policies. What should be tackled simultaneously is: infrastructure; service quality linked to trade and transport; a better coordination with border administration and similar agencies related to the entry/exit of cargo; and finally, promoting the creation of regional trade corridors.
The focal point is how to achieve productive chains that are able to operate with the appropriate procedures and logistics in country. For that to happen, it is essential for the private and public sectors to consistently continue to dialogue in order to harmonize the interests at stake, aiming towards becoming a friendly setting for both foreign and domestic direct investment.