The comprehensive recovery of bilateral trade between Argentina and Peru in 2021

Convergent trade with a Win-Win approach and its business opportunities for 2022

The international framework

The COVID-19 pandemic began in China and began to spread around the world in the middle of the first months of 2020, reaching Latin America (LATAM) in March of that year. Likewise, this pandemic had a major impact on global trade, which contracted by approximately 10,5%.

For the first quarter of 2021, global trade registered a fall and a hopeful figure of 5,3%, which was reflected in foreign trade activities in several countries. According to the United Nations Global Outlook Human History (2021) note, the impact of COVID-19 has scourged maritime trade, but has not sunk it; that is, during 2020 maritime trade contracted by up to 3,8% and for the year 2021 it grew by up to 4,3%, providing positive prospects for the long term, but subject to growing risks and uncertainties such as the new omicron variant..

Along the same lines, Rebeca Grynspan, Secretary-General of the United Nations Conference on Trade and Development (UNCTAD), indicated that this pandemic will leave far-reaching side effects that could transform the way of working in maritime transport, given that in 2020 and 2021 there was a shortage of labor, problems with crew changes, and rising import and consumer prices, on the one hand. In addition, maritime transport will evolve as a more “intelligent, resilient and sustainable” transport, since the pandemic has driven the digitalization and automation of many processes, and it is considered that they will provide great efficiency and cost savings.

At the same time, this sector is preparing for climate adaptation and resilience, such as the urgency of decarbonizing and using friendly fuels that reduce carbon emissions on the planet. These initiatives would support the 17 sustainable development goals (SDGs) of the United Nations (UN) 2030 agenda.L.).

For these reasons, the head of UNCTAD says that she is recovering ittion of global trade will depend of a maritime transport eco friendly: “Smart, resilient and sustainable”, and a broad global vaccination effort, where all countries have more access to vaccines. In this same context, Rebeca urges maritime companies, governments and international organizations to ensure that employees in this sector are vaccinated, trained as a priority, and above all to replicate and disseminate these initiatives in other sectors in order to cope with future impacts in a more conscious way.e.

According to the Economic Commission for Latin America and the Caribbean (ECLAC) (2021), Alicia Bárcena Ibarra, Executive Secretary, indicates that the countries of the LATAM and Caribbean region will present an asymmetric and heterogeneous recovery, as a result of the great uncertainty caused by the crisis derived from the COVID-19 pandemic.

The ECLAC Executive Secretary also highlighted some data on the region's situation for 2021, which were:

• Regional exports of goods increased by 25%, up from 10% in 2020.
• Export prices rose by 17% and the volume of total goods exported by 8%.
• Total imports to the region increased by 32%, with a 20% expansion in volume and 12% in prices.
• South America recorded a 34% increase in total export value, driven mainly by raw material prices.
• Similarly, the Caribbean benefited from high prices for crude oil, gas and bauxite (raw material used in the production of aluminium), exported by Guyana, Trinidad and Tobago, and Jamaica.
• Mexico also showed a 17% increase in its total exports, which mainly come from manufacturing.
• Existence of a dynamic, dependent style, in trade with China and the region, since the projected annual variation in the value of regional exports to China in 2021 was 35%, while for the LATAMA region and the Caribbean it was 33%, the European Union 23% and the United States 19%. Recent data confirm that the region still shows a tendency to be a key, dependent-style trading partner of China.
• Therefore, this increase seen in exports from LATAM and the Caribbean is due to the rise in prices of basic products, specifically minerals, hydrocarbons, and agro-industrial products. However, exports of services in these regions have not yet recovered, particularly the tourism sector, which is one of the major sources of income for some Central American countries.
• Finally, the situation of the impacts of the COVID-19 pandemic should call for reflection on the urgency of deepening and implementing a “correct” regional economic integration, in order to advance towards a “better” integrated, competitive regional market with less dependence on large economies. In other words, the countries of LATAM and the Caribbean should seek to efficiently promote and innovate their national and export production processes, in order to achieve greater autonomy in strategic sectors and resist future uncertainties such as this pandemic.

Economic Complementation Agreement (ACE) No. 58 – MERCOSUR and Peru

ACE No. 58 was signed by the governments of Argentina, Brazil, Paraguay, Uruguay, other States Parties to MERCOSUR and Peru. In Peru, this agreement was signed on December 30, 2005 through Supreme Decree No. 035-2005-MINCETUR, which also came into force in 2006 in the other States Parties to MERCOSUR.

The importance of ACE No. 58 is that it establishes a legal and institutional framework for cooperation and economic integration between these signatory countries, with the aim of creating a friendly, beneficial and expanded economic space, and thus facilitating the free circulation of goods and services with a 100% tariff preference. That is, since January 1, 2021, all Peruvian products destined for Argentina or Brazil enjoy this 100% tariff preference or “zero tariff”, as well as those destined for Paraguay or Uruguay, since January 0, 1.

In the third quarter of 2021, trade between MERCOSUR and Peru grew by 52%, recovering from the decline suffered in 2020 (-22%). Likewise, a third of this trade is agricultural goods exported from this bloc (main supplier) to Peru, 34% of the total, of which corn (81% of imports to Peru) and soybeans/derivatives (42%) stand out.

On the part of Peru to the bloc, Peruvian exports grew by 25%, with products such as tara (151%), cocoa (90%) and oregano (36%) standing out.

The main trading partners of this bloc for Peru are: “Brazil and Argentina”, with Argentina being the second trading partner par excellence. Argentina, as of the third quarter of 2021, has shown an increase of 38% in total exports to Peru, where 96% come from the import of vehicles, 61% from pharmaceutical products, 52% from soybean derivatives and 45% from corn. In contrast, Peru has shown an increase of 39% in total exports to this country, with copper wire being the most exported product (221%), silver (187%), calcium phosphate (100%) and clothing at 33%.

Analysis of bilateral trade between Argentina and Peru in 2021

By November 2021, Argentine exports reached their highest level since 2012, according to a report issued by the Argentine Foreign Ministry, total exports were US$ 71,320 million in the first eleven months (Bloomberg Línea, 2021).

The Télam Agency (2021) indicates that Argentine exports grew by 37% until November 2021, presenting itself as the highest level since 2012, which was supported by the Argentine Agency for Investment and International Trade (AAICI).

In this same sense, the automotive sector showed the best export performance in the last 8 years and agricultural manufacturing was second in reaching historical records.

In addition, vehicle exports recorded successful sales of more than 32 thousand units, the highest level since November 2014, of which 15% were destined to Brazil, China (8,3%), the United States (6,1%), India (5,3%), Chile (5,2%), Vietnam (4,1%), the Netherlands (4,0%), Peru (2,5%), Spain (2,4%), Indonesia (2,4%) and the rest (44,6%).

Of the total imports, a total of US$ 56,968 million was recorded, giving a trade balance of a surplus of US$ 14,352 million at eleven months of 2021.

Of the imports, the main suppliers are China with 21,1%, Brazil (19,7%), the United States (9,4%), Paraguay (4,9%), Germany (4,1%), Thailand (2,5%), India (2,2%), Mexico (2,2%), Italy (2,1%), Vietnam (1,9%) and the rest (29,9%).).

Now, trade between Peru and Argentina is around US$ 1,619 million, as of November 2021, with a very large result in favor of the Argentine economy. This is because Argentina supplies soybeans and their derivatives, other types of food, and vehicles. As a counterpart, Peru exports natural calcium phosphate, copper wires, steel bars, plastic inputs, clothing and clothing accessories, among others.

The Win-Win Approach to This Trade and Its Opportunities for 2022

Bilateral trade between Argentina and Peru has always had a win-win approach, given that both nations have as a priority to deepen the bilateral political, economic and commercial agenda, cooperation in different areas. Consequently, ACE No. 58 has been showing great progress in trade between Peru and Argentina, since the signing of this agreement; that is, the balance of trade provides a result in favor of Argentina by virtue of the fact that Peru is among its main export destinations in the LATAM region.

On the other hand, in 2020, the Peruvian Ambassador to Argentina, Peter Camino, and the Foreign Minister, Felipe Solá, held a working meeting with an agenda of various topics in politics, migration, economics, trade, among others; this meeting highlights the initiatives to improve trade flows between both nations. For example, the fall in Argentine biodiesel exports in the Peruvian market was addressed, this reflects the effects of the antidumping duties imposed by Peru in that year, this being one of the many concerns and a seedbed (impulse) to be able to regulate it more efficiently in the future.

Likewise, a commercial opportunity could arise between Peru and Argentina regarding the production of biodiesel in Peru, given that Argentina has the technology and great potential as the second largest producer of this product derived from vegetable oils. Argentine companies together with their Peruvian counterparts could form a joint partnership to benefit both parties and thus extract biodiesel from oil palms in the regions of Ucayali, San Martín, Huánuco and Loreto, with the aim of joining the fight against the planting of coca leaves.

In addition to the above, this commercial opportunity for biodiesel would help in the fight against drug trafficking and will not affect the national production of biodiesel in Peru, promoting a win-win between Peruvian and Argentine companies, avoiding the imposition of antidumping duties on this product..

Along the same lines, in February 2021, business associations, the Foreign Trade Research and Development Institute (IDEXCAM), the Lima Chamber of Commerce (CCL) and experts from the Association of Exporters (ADEX), reached a unanimous decision to promote the negotiation of a Free Trade Agreement (FTA) or improve some aspects of ACE No. 58, given that Argentina is an excellent trading partner in terms of the acquisition of inputs for products related to the export of textiles-clothing and its accessories, calcium phosphate, copper wire, kerosene, rubber, cocoa powder, agricultural products such as fresh grapes, especially in times of scarcity in the albiceleste country.

On the other hand, MERCOSUR Agreement No. 58 (Argentina – Peru) does not address exports of services or investments; therefore, it is necessary to have a free trade agreement that covers these foreign investment chapters, which includes services, investment and intellectual property with brands originating in the country.

A concurrent opportunity is the support in international fairs, business meetings, access to financing, among others, which should continue to be promoted by the Peruvian government towards companies that export raw materials such as rubber to serve the Argentine automotive industry, minerals (copper, zinc, aluminum), calcium phosphate, textile products, agro-industrial products, in order to be a competitive and attractive supplier for the Argentine market.

The Economic and Commercial Counselor of Peru in Argentina, Silvia Elizabeth Seperack Gamboa, indicates that thanks to the new sanitary protocol for access of grapes between Peru and Argentina, the entry of this agricultural product to this market can be facilitated in times of scarcity or to complement the attention of internal demand, since our grapes are harvested earlier. Likewise, quinoa, cocoa and coffee could be inserted into the value chain of food production in Argentina, as an opportunity to promote healthy foods, through the Superfood del Perú sector brand; all these initiatives can be seen on the BtoB Peru MarketPlace commercial platform (WebPicking, 2021)

Finally, the need to initiate and implement a FTA between Peru and Argentina is evident, for the reasons and purposes mentioned above..

Mayron Ponce de León Sierra is a Data Analyst at the Directorate of the Origin Unit in the Ministry of Foreign Trade and Tourism of Peru. doctorando Global Business Management at URP.

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• Trade Agreements (2021). Economic Complementation Agreement between Peru and the States Parties of MERCOSUR (Argentina, Brazil, Uruguay and Paraguay). Available in  http://www.acuerdoscomerciales.gob.pe/En_Vigencia/Mercosur/inicio.html

Last consulted: 03/01/2022

• Bloomberg Line (2021). Argentine exports reached their highest level since 2012 in November. Available in https://www.bloomberglinea.com/2021/12/27/las-exportaciones-argentinas-en-noviembre-llegaron-a-su-nivel-mas-alto-desde-2012/

Last consulted: 03/01/2022

• ECLAC (2021). R Trade in the region will see a significant increase in 2021, but recovery will be asymmetric and heterogeneous in a context of uncertainty. Available in https://www.cepal.org/es/comunicados/comercio-la-region-tendra-importante-alza-2021-pero-recuperacion-sera-asimetrica

Last consulted: 02/01/2022

• Global Look Human Stories UN News (2021). The impact of COVID-19 has left maritime trade shaken, but not sunk. Available in https://news.un.org/es/story/2021/11/1500122

Last consulted: 02/01/2022

• Ministry of Foreign Affairs, International Trade and Worship (2020). maritime (2021). Argentina and Peru deepen their bilateral agenda. Available in https://cancilleria.gob.ar/es/actualidad/noticias/argentina-y-peru-profundizan-su-agenda-bilateral-0

Last consulted: 03/01/2022

• Maritime World (2021). Omicron variant threatens the nascent recovery of global trade. Available in https://www.mundomaritimo.cl/noticias/variante-omicron-amenaza-la-incipiente-recuperacion-del-comercio-mundial

Last consulted: 20/12/2021

• WebPicking (2021). Peruvian exports grow. Available in https://webpicking.com/crecen-las-exportaciones-peruanas/

Last consulted: 03/01/2022