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Export Opportunities with Australia-Peru Free Trade Agreement

Isolated by its geographical position, Australia is an export-driven economy that has had to build strong relationships with its key partners and neighbors. Its strong economic performance and nearly 3 decades of consistent growth is testament to its powerful export activity.

The country offers companies and investors significant trade opportunities for their business. One of the most effective and secure ways Australia supports international trade is through the constant pursuit of free trade agreements (FTAs) with other countries.

The Australian government and its government agencies have not historically maintained strong trade relations with Latin America, but this has changed dramatically in recent years. The region is now generating impressive commercial outputs and is growing at a rapid pace, catching Australia’s eye. Partnerships with key traders in Latin America grants access to new consumer markets for Australian companies.

We explore increasing export opportunities for Australia in Peru, under the signed Peru-Australia Free Trade Agreement (PAFTA).

Peru-Australia Free Trade Agreement (PAFTA)

The Peru-Australia Free Trade Agreement (PAFTA) was concluded in 2018, and has yet to fully enter into force. As Peru's GDP is projected to grow by 3.9% in 2019 to US$232 billion, this is a highly valuable trade opportunity for Australian exporters.

The PAFTA also provides a gateway to the rest of the Pacific Alliance member countries (Mexico, Colombia, Chile, and Peru), with whom Australia is currently negotiating a multilateral trade deal.

Currently, two-way trade between Australia and Peru is valued at AU$717 million, and Australia has made AU$316 million worth of foreign direct investment (FDI) in Peru.

Big wins for Australia from PAFTA

A quick overview of key PAFTA conditions shows significant benefits for Australian business in the following ways:

·     Elimination of tariffs on beef within 5 years to ensure duty-free access to the Peruvian market for Australian beef producers

·     Greater access to Peru’s sugar market has been provided to any sugar exporting country in the last 20 years.

·     Market opening for the following products: Australian wine, sheep meat, most horticultural products, kangaroo meat, dairy products, and wheat

·     Duty-free conditions for Australian companies for pharmaceuticals, medical devices, paper, and cardboard

·     New opportunities for Australian mining service providers, facilitated by Peru's commitments

·     Recognition of Australian higher education diplomas by Peru.

PAFTA will increase Australia's in the South American region and presents great potential for profitable commercial activity for Australian exporters to Peru.

Exports opportunities for Australian companies

For Australian exporters of goods and services, the Peruvian market is an ideal new market to enter. With growth at an average of over 2% over the past 5 years and with the help of the new PAFTA, the country’s secure commercial environment is welcoming to seasoned traders looking to break into Latin America.

Thanks to PAFTA, Australian products will have their tariffs removed, making them more competitive in this growing economy and in neighbouring markets.

With this progress, Australia will also assume a more prominent role as a commercial bridge between Asia and Latin America. Australian businesses can build stronger connections between Latin American and Asian partners, and facilitate a strong trade route between the regions.

Potential for mining equipment and expertise exchange

The Peruvian mining sector is full of opportunities for Australian exporters. The industry receives billions of dollars in investments from Australian companies. Additionally, mining equipment is among the top 5 Australian exports to Peru.

The new PAFTA agreement offers increased opportunities for Australian mining equipment manufacturers, and provides mining service companies with guaranteed access to the market. The Peruvian mining sector has high environmental and safety requirements, and hasn’t always been easy to navigate. Hard-to-reach geographic areas, expensive energy, and scarce water sources are all difficulties the Peruvian mining sector faces that Australian equipment and expertise can offer new, innovative solutions to.

Export opportunities for Australian mining technology, equipment and services

Australian mining equipment, technology, and services (METS) exporting companies offer efficient solutions and innovative technology in mining, lending them a significant advantage in the Peruvian market. Peruvian mining companies are desperate to maintain their productivity and competitiveness by reducing costs and boosting efficiency.

Some opportunities for Australian exporters to succeed in Peru’s mining sector include:

·     Mineral exploration: geophysics, mapping, diamond drilling, and tunneling

·     Mining software: resource estimation, modeling, mine design, and planning, maintenance and optimization

·     Mining infrastructure

·     Innovation and research and development

·     Automation and robotics

·     Contract Engineering and Mining Services

·     Education and training for industry

·     Environmental Products and services: water and wastewater treatment plants, effluent analyzers and software

·     Mine safety training and equipment due to new regulations

·     Community Engagement Consultation

·     Land reclamation and mine closure.

Some products in the mining sector will also significant tariff and customs duties reductions:

·     Iron, copper, and nickel ore from base metals: rates will be immediately eliminated.

·     Coal: customs duties will be eliminated immediately.

·     Mineral fuels and mineral oils: the customs duties applied will be immediately eliminated.

Beef, sheep meat and dairy products

PAFTA provides an attractive opportunity for the export of Australian beef and sheep meat, with an established competitive advantage with direct competitors of Australian products.

The agreement provides for the elimination of export duties within five years after the entry into force of the FTA and an exemption from customs duties upon its entry into force. Notably, the main conditions in the PAFTA for beef and sheep meat include:

·     Beef cuts: tariffs of up to 17% will be eliminated within five years

·     Sheep meat: customs duties of up to 9% will be eliminated.

Australian market observers estimate that red meat consumption in Peru is likely to triple by 2020, giving Australian exporters ample opportunity to increase their delivery of red meat to Peruvian consumers at highly competitive prices.

Opportunity for the dairy industry

Likewise, PAFTA’s duty-free conditions for Australian dairy exports will improve the competitiveness of these products in the market, against top North American and European providers.

According to the latest estimates of Euromonitor International, from this year 2019 until at least 2021, the Peruvian dairy market is expected to grow annually by 3.9% from US$ 2.6 billion in 2017 to US$ 3.1 billion in 2021.

Other agricultural products

Dairy and beef products are not the only agricultural products to benefit from significant advantages of this agreement you can find below a list of products benefiting from significant advantages on their exports to Peru:

·     Sugar: duty-free access of up to 30,000 tonnes in exports to Peru, increasing to 60,000 tonnes in 5 years and 90,000 tonnes in 18 years

·     Rice: duty-free access for exports of up to 9,000 tonnes of rice products to Peru, which will increase to 14,000 tonnes in 5 years

·     Sorghum: duty-free access of 15,000 tonnes of sorghum exports to Peru, which will increase to 20,000 tonnes in 5 years

·     Seafood: the current 9% tariff will be eliminated

·     Almonds: customs duties of up to 9% will be immediately eliminated

·     Wine: the current 9% customs duties on lines of commercial interest to Australia will be immediately eliminated, the remainder being phased out over five years.

Australia’s exports from the agricultural sector is, therefore, one of the major winners of the new PAFTA free trade agreement with these many products benefiting from a considerable advantage in terms of exports to the Peruvian market.

Water solutions

Peru, like most countries in the world, is going through a significant transformation in its water management and production processes. Peru has a somewhat unequal distribution of water in the country. Peruvian sectors experiencing the most significant growth in recent years are also the neediest in terms of water. This includes mining, energy, and agriculture.

Australia has extensive expertise in water-related technologies and services. Its agriculture and mining industries offer innovative solutions and experience in working conditions with limited resources, high costs, and high environmental requirements.

There are great opportunities in water management that could greatly benefit Peru’s agricultural sector, especially in terms of infrastructure and initiatives driving better use of water from rivers in the Pacific Basin. Peru has 2,400km of coastline on the Pacific Ocean, and is at risk of desalination, which causes problems for its agricultural activities.

Australian expert companies to provide water for the mining and industrial project that is facing stiff opposition from local communities and government regarding their water use. Australian companies can meet several needs in the Peruvian market, including:

·     Services for the improvement of water and sanitation infrastructure in large cities

·     Water management consulting

·     Water technology: desalination, treatment of highly contaminated mining effluents, optimization of water use, water quality control equipment, more efficient irrigation systems, and water reservoirs

·     Education and training of government and industry, as well as the community.

PAFTA opens the doors for Australian exporters looking for opportunities to expand their consumer base and move into a thriving new market. While international connections and trade relations between Australia and the region are still budding, exporters who secure their market share in Peru now are positioned perfectly for success in Peru and other neighboring commercial environments.

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