Lexology | 21 February 2020
The Peru-Australia free trade agreement: Australia’s gateway into Latin America
by Samy Mansour - Clayton Utz
On 11 February 2020, the comprehensive free trade agreement between Australia and Peru, the PAFTA, came into force. The PAFTA provides Australian businesses with greater access to one of the fastest growing economies in Latin America over the last decade, with that growth trajectory predicted to continue over the coming years.
Peru has a promising GDP of US$215 billion, and is an important trading and investment partner for Australia with total two-way trade valued at A$590 million and Australian investment in Peru valued at A$5 billion.
Encouraging inbound investment into Australia
With the PAFTA now in force, Peru will now be classified as an “FTA partner country” for the purpose of Australia’s Foreign Investment Review Board (FIRB), meaning that Peruvian investors will benefit from a higher monetary threshold for foreign investment screening. Specifically, the threshold for privately-owned Peruvian investors has increased from A$275 million to A$1,192 million for acquisitions of non-sensitive businesses and developed commercial land in Australia.
Improved access for Australian goods exporters
PAFTA also removes barriers to trade between Australia and Peru across various industries, with the elimination of more than 99% of tariffs within five years. This is particularly relevant to the following industries:
Additionally, the PAFTA provides for the elimination of tariffs for goods including seafood, coal, iron ore, copper and nickel, and immediate duty free access for:
Removing key barriers to services trade
The PAFTA benefits Australian service providers by providing the best services commitments that Peru has offered any foreign partner and removing key barriers to services trade, including:
What this means for Australian businesses
The PAFTA will benefit Australian businesses – and the Australian economy more broadly by attracting more inbound investment into Australia from Peru on account of the lower FIRB thresholds for certain investments. This will likely increase foreign investment competition in Australia and provide Australian businesses with greater options for capital raisings. The PAFTA will also benefit Australian businesses by improving market access to Peru by reducing traditional barriers of trade, namely through the elimination and reduction of duties and tariffs, as well as the newfound recognition of Australian tertiary education. The improved freedom of goods and services trade between Australia and Peru will provide Australian businesses with a wider market size and the ability to secure a foothold in the rapidly expanding Latin American economy.
Australian businesses should take note of the PAFTA and position their business accordingly – not only because of the benefits of the PAFTA itself – but also because the PAFTA is likely to serve as a stepping stone for the Pacific Alliance Free Trade Agreement which Australia is in the process of negotiating with the Pacific Alliance (Chile, Colombia, Mexico and Peru).