Canada: Canada And Peru Enter Free Trade Deal And Related Agreements

Copyright 2008, Blake, Cassels & Graydon LLP

Originally published in Blakes Bulletin on International Trade, June 2008

Canada's newest free trade agreement offers significant benefits to Canadian importers, exporters, and service providers, as well as to investors in several key sectors. The Canadian government recently entered into the Canada – Peru Free Trade Agreement, an Agreement on the Environment, and an Agreement on Labour Cooperation. Canada and Peru are aiming for all three Agreements to enter into force by January 1, 2009.

On May 29, 2008, The Honourable Helena Guergis, Secretary of State, acting on behalf of Canada's Minister of International Trade, David Emerson, signed a Free Trade Agreement (FTA) with Peru. Secretary Guergis also signed an Agreement on the Environment with Peru on behalf of John Baird, Canada's Minister of the Environment. On the same day, Peru and Canada signed an Agreement on Labour Cooperation. Negotiations toward the Canada-Peru Free Trade Agreement concluded in January 2008, in keeping with Prime Minister Harper's stated commitment to re-engage Canada's relationships in the Americas.

Although Peru has been an established trading partner of Canada for some time, bilateral trade levels have been particularly strong and growing over the last two years. Canadian merchandise exports to Peru totalled C$330-million in 2007, while imports from Peru amounted to C$2.1-billion. Canada is also a significant foreign direct investor in Peru's mining and financial services sectors, as well as other sectors, accounting for approximately C$1.8-billion of investment stock in Peru during 2007. Canada's commercial services exports to Peru were C$46-million during 2004, the last year for which statistics are available. Peru's growing importance as a trade partner makes the FTA a significant achievement for Canada.

The Canada-Peru Free Trade Agreement provides for:

  • Peru's immediate elimination of tariffs on 95% of current Canadian exports (including wheat, barley, lentils, peas, and selected boneless beef cuts, as well as various paper products, machinery, and equipment), with remaining tariffs to be eliminated over a five- to 10-year period

  • Canada's immediate elimination of 97% of tariffs on Peruvian imports, with remaining tariffs to be eliminated over a three- or seven-year period

  • Enhanced market access to key service sectors in Peru, including mining, energy, and professional services, as well as comprehensive disciplines for the financial services sector, including banking, insurance, and securities

  • The inclusion of provisions that build on the Canada-Peru Foreign Investment Promotion and Protection Agreement (in force since June 20, 2007), including free transfer of investment-related capital, protections against unlawful expropriation, non-discriminatory treatment of Canadian investments, and binding international arbitration for the settlement of disputes

  • The guaranteed right of Canadian suppliers to bid on Peruvian government procurement contracts

  • A chapter on Trade-Related Cooperation (the first such chapter in a Canadian FTA) the purpose of which is to assist Peru in trade-related capacity initiatives, thus strengthening Peru's ability to maximize the FTA's benefits, and

  • Measures designed to combat bribery and corruption, and to promote internationally recognized standards of corporate social responsibility.

There are exceptions to the above provisions in two important areas. First, Canada will not eliminate over-quota tariffs on Peruvian dairy, poultry, eggs, and refined sugar, these goods being excluded from tariff reductions; in addition, a tariff-rate quota will apply to refined sugar.

Secondly, exceptions to non-discriminatory treatment exist in both the Peruvian and Canadian markets. In Peru, non-discriminatory treatment does not apply to the importation of used clothing and footwear; used vehicles and automotive engine parts; used tires; or used goods, machinery, or equipment utilizing radioactive sources. In Canada, non-discriminatory treatment does not apply to export controls on logs or unprocessed fish, excise duties on absolute alcohol used in manufacturing, the use of ships in the coasting trade, the internal sale and distribution of wine and distilled spirits, and the importation of certain goods that are prohibited pursuant to the Customs Tariff (for example, firearms, weapons, certain live birds, counterfeit coins and obscene materials). There are also exceptions for environmental protection measures, national security, and taxation matters.

In addition to the FTA, Canada signed the Canada-Peru Agreement on the Environment and the Canada-Peru Agreement on Labour Cooperation. The Agreement on the Environment commits both countries to pursue high levels of environmental protection and corporate social responsibility. This includes a commitment to effectively enforce domestic environmental laws, and to refrain from relaxing these laws to encourage trade or investment. The Agreement on the Environment also commits Canada to assisting Peru in conserving its biological diversity in a way that respects the interests of Peru's indigenous peoples and local communities.

The Agreement on Labour Cooperation sets a new global standard for labour provisions within free trade agreements, offering strong protections for workers in both Canada and Peru. These include occupational health and safety protections; the elimination of forced or compulsory labour, as well as child labour; and enshrining the same legal protections for migrant workers in respect of working conditions as those afforded to nationals. In addition to strengthening these and other protections, the Agreement on Labour Cooperation seeks to ensure that competitors in other nations do not undercut Canadian enterprises by ignoring labour laws.

The federal government will table all three agreements with Peru in the House of Commons for a period of 21 sitting days. After this 21-day period for Parliamentary review, the government will introduce legislation to implement the treaties, aiming for the agreements to enter into force by January 1, 2009.

All three agreements were signed as part of Canada's Global Commerce Strategy, which strives to deepen Canada's access to global markets and networks through a robust international negotiations agenda. The negotiation of FTAs and Foreign Investment Promotion and Protection Agreements (FIPAs) in the Americas is a key component of this strategy. In addition to Peru, Canada has signed FTAs in the Americas region with Chile, Costa Rica and, through NAFTA, with Mexico. Canada also has FIPAs in the Americas region with Peru, Uruguay, Paraguay, and Venezuela, as well as Argentina, Costa Rica, Ecuador, El Salvador, and Panama.

With the WTO multilateral trade negotiations moving at a slow pace, Canada has joined other countries in seeking to enter into bilateral and regional free trade agreements to expand opportunities available to traders. The recently concluded agreements with Peru are examples of this. Canadian companies should study the new agreements carefully and take advantage of opportunities made available not only through these agreements directly but also through the maze of bilateral and regional trade agreements to which both Canada and now Peru are parties.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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