News: Seeking Profits in Peru
Free Trade Pact Slated to Take Effect This Year, Possibly Boosting Exports.
Monday, 3rd March 2008
Free Trade Pact Slated to Take Effect This Year, Possibly Boosting Exports If a free trade agreement with Peru goes into effect as planned this year, Orange County companies could have to learn more than how to exchange a dollar into a nuevo sol to do business with the South American country. Since Peru is a small trade partner with the U.S. and OC, many companies don't have experience there, said Maria Cameron, U.S. Commerce Department desk officer for Peru and Venezuela in Washington, D.C. Once implemented, an agreement President Bush signed in December should make it easier for U.S. businesses to export to Peru by lowering taxes on goods and services. Some local companies are starting to look into their options for exporting goods and services there. In 2006, the most recent numbers available from the Commerce Department, it's estimated that OC companies sent about $18 million in exports to the Andean country. That makes Peru a tiny market for local companies, which, by comparison, export about $2 billion worth of goods to Mexico each year. But Peru is growing. Its gross domestic product was about $85 billion last year and grew at a rate of more than 7% in 2007, according to statistics from the Central Intelligence Agency's World Fact Book. The country's growth and stable government are attractive to U.S. companies, Cameron said. "It's getting to be a much better place to do business," she said. "It's a stable democracy and you know who you are dealing with." Level Playing Field The pact does more than just lower tariffs. It puts into place codes of conduct to smooth cross-border business transactions and makes the process more transparent. "The trade agreement levels the playing field for U.S. companies," Cameron said. She spoke to local businesspeople last week at an information session hosted by the U.S. Commercial Service in Newport Beach, a branch of the Department of Commerce that helps facilitate trade. Historically, it's been tough for U.S. companies to export to Peru. "Peru has been a very difficult market to break into," said Dagoberto Pineda, cofounder and vice president of sales for San Juan Capistrano-based Lightning Technology Inc., a reseller of networking gear and accessories made by Cisco Systems Inc. and others. "It's different from other countries in Latin America where you can get an import, reseller or business license fairly easily," he said. Roughly 40% of Lightning Technology's sales are in Latin America, Pineda said. The privately held company doesn't disclose revenue figures. "Peru is a great market to tap," Pineda said. "They have the demand and the opportunity is there. It's just the bureaucracy that's hard to get around." Pineda said he had a hard time even establishing a phone number in Peru to do business. He said he hasn't encountered such problems exporting to Mexico, Panama, Chile, Costa Rica or Brazil. "It's very slow and very complicated in Peru," Pineda said. "It's more bureaucratic." The top U.S. exports to Peru are computers and other electronic gear for building out computer and storage networks. Roughly a quarter of all California exports to Peru were made up of tech devices in 2006, according to the Commerce Department. "Peru has an improving education system and a high uptake of Internet connectivity," the Commerce Department's Cameron said. "People there are becoming more and more IT literate." Some local companies could benefit from the trade agreement, including Irvine's Linksys, a maker of networking gear owned by Cisco, and Irvine's Toshiba America Information Systems Inc., a unit of Japan's Toshiba Corp., among others. The second-biggest market for exports to Peru is for medical equipment and machinery used in manufacturing. The trade pact would allow Peruvian businesses to import refurbished machinery from the U.S., something Peruvian officials hadn't previously allowed. "There's a big market for remanufactured goods, especially for medical equipment and auto parts," Cameron said. The trade agreement with Peru could give smaller businesses a boost, too. Asim Khan, chief executive of small consulting outfit Khanstellation Group Inc., said such an agreement "allows for the opening up of overseas channels of distribution in order to offset seasonal fluctuations in sales domestically." "We take advantage of free trade agreements because it makes products much more cost competitive," he said. His Laguna Niguel-based firm acts as brokers for small and midsize companies looking for sales abroad. Khan has helped companies such as Rancho Santa Margarita-based Multicoat Corp., a maker of waterproof coatings for cement and stucco, go after sales in South America and the Middle East. "We've prepared them for general distribution in Mexico, Peru and Dubai," Khan said. "It requires in-house knowledge and expertise into how things are done in those countries." That expertise comes in particularly handy in Latin American countries, Khan said.