Dear Member of Congress:
I am writing in regard to the imminent Congressional action on the US-Peru free trade agreement, titled the US-Peru Trade Promotion Agreement (PTPA). Oxfam America believes that trade can be an engine for development and poverty reduction, and we strongly support measures to improve trading opportunities that can reduce poverty. However, we also believe that trade agreements must take into account the economic and social disparities between trading partners and include rules that allow the poor to realize these important potential benefits. Unfortunately, as a recent Oxfam report indicates, the PTPA will cause greater hardship and could undermine development in Peru. For this reason, Oxfam is calling on Members of Congress to oppose this legislation.
The PTPA, as negotiated, will harm many thousands of Peru's small farmers who supply food to their domestic market, as they will be forced into an unfair competition with subsidized US agricultural exports. The agreement will limit access to affordable new medicines in Peru by unduly extending the monopoly rights of the international pharmaceutical industry. The PTPA will also restrict Peru's ability to regulate foreign investment to ensure it serves national development.
Agriculture
More than half of Peru's nearly 28 million inhabitants live in poverty, many of them in rural areas, and the PTPA will adversely affect the livelihoods of many of the poor if passed. Agriculture is the main source of jobs in rural areas, generating nearly a third of all employment nationally. The vast majority of Peru's agricultural production is for domestic consumption. The trade agreement makes permanent the export opportunities that Peru currently enjoys under US trade preference programs and will thereby benefit certain export sectors. Yet barely 8 per cent of Peruvian agricultural production is for export, only one third of which is destined for the US (coffee, as well as non-traditional products such as asparagus and artichokes).
On the other hand, the PTPA will fully eliminate tariff protection on basic crops, which the US International Trade Commission has estimated will lead to large increases in Peru's imports of US basic grains, such as wheat, rice and corn. This means that Peruvian farmers who supply their domestic market will be undercut by heavily subsidized, cheaper US imports that are dumped in Peru below their real cost of production. As a result, there is a risk that many Peruvian farmers who are no longer able to earn a living by producing basic grains will turn to coca cultivation, thereby undermining years of US foreign policy and drug eradication efforts.
It has been suggested that Peru's farmers could be compensated for the loss of their livelihoods. However, Peruvian agricultural leaders have stated that farmers would need close to $1 billion to compensate for their annual losses from the PTPA, nearly 30 times what the Peruvian government has committed to make available. This is also a far less effective way to promote development than providing full and effective safeguards for crops that are vital to livelihoods and food security.
Access to Medicines
The PTPA could lead to significant increases in medicine prices, another issue of major concern for poor people in Peru. Stringent, new intellectual property provisions in the PTPA will restrict generic competition and lead to higher prices for new medicines in Peru. Only half of all Peruvians have health insurance and about one-fifth of the population has no access to health care. Medicines account for one-quarter of all public health expenditures and 44 percent of household spending on health. People living in poverty are, for the most part, not insured and must either pay out of pocket or receive no treatment at all. Given these conditions, any increase in the price of medicines is likely to have significant negative consequences for the
The PTPA will unduly extend monopoly protections for the international pharmaceutical industry, which will mean that fewer Peruvians, particularly the poor, will be able to get the medicines they need. A study commissioned by the Ministry of Health in Peru has shown that provisions in the PTPA will increase the cost of new medicines, and the Health Minister has reported that an increase in public health care expenditures will likely be required in future years. Imposing new burdens on an already cash-strapped health care system will further exacerbate poverty and inequality in Peru. The primacy of public health over private patents has already been well-established at the World Trade Organization (WTO). Yet the PTPA ignores this by restricting the use of public health safeguards allowed under the WTO and requiring adoption of new intellectual property rules that exceed the WTO standards.
Investment
The rules on investment in the PTPA give foreign companies leeway to challenge investment regulations, such as laws to protect the environment and public health. This will undermine Peru's ability to ensure that foreign investment contributes to national development, rather than exacerbating poverty. For example, Peru's Law for the Promotion of the Agricultural Sector grants the farming industry certain tax benefits if at least 90 percent of its inputs are sourced nationally. Under the PTPA, this law could be challenged and potentially repealed. Likewise, efforts to regulate the operation of the mining industry to address its health and environmental effects could be challenged.
Conclusion
While the economic impact of the PTPA on the US is likely to be negligible, the economic and social costs to Peru will be high, especially among the poor. Peruvian agricultural exports to the US will expand little, as noted by the ITC, given that these products have already enjoyed duty-free access to the US market under Andean trade preference programs for the last 15 years. Contrary to promoting stability in Peru and the Andean region, the PTPA is likely to exacerbate the existing problems of poverty and inequality and undermine regional integration and development.
Although the PTPA has been actively promoted by Peru's outgoing president and approved by its lame-duck Congress, there is deep concern among much of Peru's population about agreement. Broad cross-sections of civil society in Peru have actively opposed or questioned the trade agreement. The PTPA was a significant campaign issue in the recent presidential elections, and the winner, incoming President Alan Garcia, campaigned on a promise to closely review the agreement's potential impact and renegotiate it if necessary.
Oxfam believes that in order for trade to truly be "win-win" for developed and developing countries, trade rules should be negotiated under the multilateral trading system at the WTO. The Doha Development Round was launched with the understanding that it would deliver on the promise of development for poor countries. A successful conclusion to these WTO negotiations that provides new opportunities for developing countries will also benefit the US by promoting more stable economies and increased purchasing power in the developing world.
Bilateral trade deals like the PTPA complicate the global trading system and divert efforts to achieve a more valuable global agreement at the WTO. Furthermore, the PTPA includes rules that weaken the ability of Peru to enact policies that reduce poverty and further national development.
For these reasons, and because of the harm it will cause to the poor in Peru, I urge you to vote no on the US-Peru free trade agreement.
Sincerely yours,
Raymond C. Offenheiser
President