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Peruvian Gov’t Will Not Subsidize its Cotton Farmers

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After careful deliberation, the government of Peru officially decided it will not provide subsidies for its domestic cotton farming.

Minister of Agriculture and Irrigation Juan Manuel Benites said that the continuation of governmental assistance to cotton farmers is simply not a sustainable economic practice. While he understands that many Peruvians are in favor of the official support of the nation’s cotton staples, especially Pima cotton, he argued that such protectionist practices would only undermine Peru’s longterm competitiveness.

Of course, Benites said, there are other ways the government can assist cotton farmers that don’t involve direct subsidization. For example, he said that cotton farmers fallen on hard times could apply to the Compensation Program for Competitiveness, which disburses various kinds of financing for cotton farmers for the sustainable production of a crop.

Peru’s government has been trying to reorganize its fabric production industry, particularly the relationship between private commerce and public policy. While considered by many to be full of promise as a garment exporter Peru has experienced it share of troubles lately. In 2013, its textile and clothing exports plummeted 11 percent. Also, Peru signed a free trade agreement in April 2009 with China, which initially seemed like a natural fit for both signatories, but has turned out to be problematic. China desired easy access to sources of raw materials vital to its swelling economy, like copper and other base metals. Peru has one of the most abundant supplies of these materials, and is historically amenable to attracting foreign investment, always on the hunt for free trade agreements. But Peruvian authorities didn’t heed warnings that its textile industry would be insufficiently protected from competition from aggressive Chinese manufacturers and retailers. Now, a once flourishing apparel business, particularly in Lima’s famous garment district, is languishing as shoppers prefer lower priced, higher quality Chinese goods.

Peru might benefit from signing the the Pacific Alliance (PA)–a free trade agreement that includes Mexico, Colombia and Chile–finally concluded on February 10. The accord instantly creates a liberalized market that includes approximately 210 million people, larger than the population of Brazil. Between the four members of the Pacific Alliance 92 percent of all goods will be exchanged tariff free, with the aim to gradually include the remaining 8 percent over the next several years. According to Morgan Stanley forecasts, the new trade bloc is anticipated to grow about 4.25% this year. Overall, the group accounts for 36 percent of Latin America’s population, 35 percent of its GDP ($1.7 trillion) and more than half the trade for the entire region.

Also, the PA is specifically designed with the intent of strengthening economic ties with Asia. Ultimately, the PA plans to strike a free trade agreement with ASEAN, following up deals Chile and Peru have already brokered with China, Japan and Korea. Also, India still does not have any commercial arrangement with the PA at all though the four members did $7.7 billion worth of trade with India in 2011. Some experts estimate that a more predictable regulatory framework could double that volume over the next three years.

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