Trade and Development: The rising importance of sustainable development in the trade agenda of Peru

This paper analyses how the trade agenda of Peru has been influenced by issues of sustainable development, such as environmental, labor and social concerns. The first section presents the evolution of Peru's trade and investment policies and how these relate to issues of sustainable development. In the second section, the factors that are responsible for the introduction of these issues into the trade agenda of Peru are identified, domestic antecedents are outlined and the commitments implicated by the free trade agreements (FTAs) that Peru has signed are discussed. The new commitments outlined in the FTAs, as well as other new government initiatives related to the area, have been the source of dispute in Peru, including within the Administration. Their resolution will define Peru's official position towards these issues in the external agenda. Finally, issues that will compose the future agenda of Peru in this area, and so must be the object of further discussion, are presented.

This country report is part of a joint TKN-CINDES research project comprising of four national case studies - in addition to Peru, Argentina, Brazil and Chile were also studied - undertaken to identify, within the thematic areas of environmental and labor regulation, the most important issues for each country in terms of opportunity and/or vulnerability, as well as the forces that prompted the introduction of sustainable development topics into the country's trade and investment agendas. The other individual country studies, as well as a synthesis report summarizing the main findings for the region as a whole, are also available through the Trade Knowledge Network website.

Key points:

• It has been mainly external factors that have been responsible for the inclusion of sustainable issues in the trade agenda (and other issue areas) of Peru. Significant vectors have been the need to comply with the European Union's requirements in order to benefit from the Generalized System of Preferences (GSP-plus) and, more importantly, the environmental and social commitments subscribed to in the FTA signed with the United States, which have also been the basis for FTAs negotiated with other countries, such as Canada.

• In the nineties, public policy prioritized the attraction of foreign investment. Therefore Peru did not subscribe to high environmental or labor standards in its external agenda and questioned the use of the concept of "social dumping". Internally, the labor market regulation was relaxed to eliminate 'rigidities'. Domestic laws requiring environmental impact studies for new investment projects were passed, but not rigorously complied.

• In the present decade, the Peruvian government's aim is to make the reforms from the nineties irreversible, given the political context of questioning the benefits derived from economic liberalization. Industrialists and the state formed a coalition that saw the signing of FTAs a strategy that would consolidate the liberalization. The environmental and social clauses that were included in the FTAs were initially resisted, but finally accepted as the cost to be paid to guarantee the continuity of liberal policies. On the other hand, non-governmental organizations (NGOs) and labor unions that were opposed to the FTAs, saw in the environmental and social clauses opportunities to advance their own interests in those areas.

• The vast informality present in the Peruvian labor market, the predominance of small companies, and overall institutional weakness make the implementation of new environmental and social laws difficult. Additionally, the FTAs have been used as a pretext to pass laws permitting the exploitation of previously untouched natural resources (communal lands and in the Amazon). These difficulties not only create internal conflicts but will also have consequences for the foreign policy agenda of Peru, possibly increasing conflicts with the United States.

Key recommendations:

• Previously domestic debates - such as the role of natural gas, hydroelectric power and bio-fuels in the composition of the energy matrix, or the use of genetically modified organisms in agriculture in order to ensure food security - now must be discussed taking into consideration the normative framework adopted along with the FTAs.

• Biocommerce has the potential to contribute to the development of Peru through the sustainable use of the native biodiversity. The primary links in the biocommerce value chain are concentrated in the rural sector, associated with populations living in extreme poverty and in fragile ecosystems. There area diverse internal and external obstacles that make it difficult for this market to develop and therefore prevent these populations from benefiting from the advantages derived from economic insertion. It is necessary to study the value chain of these high priority products to identify the main obstacles to the development of these markets.