Expert Speak Raisina Debates
Published on Dec 10, 2018
FTA between India and Peru: Going beyond goods and services exchange
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Recently, different arguments have been discussed in terms of why India should focus more in the Latin American region.<1> Among them are pro poor policies in the latter that lead to expand India’s exports potential; strategic importance in energy and food security; increasing trade in commodities, among others. At the same time, the lack of a uniform approach from India towards Latin America is stated as one of the main challenges.

In particular, it becomes relevant to analyse India’s relations with Peru, one of the region’s fastest-growing economies in the last decades. Diplomatic relations started in the seventies decade, while trade and economic exchange expanded during the nineties, when Peru joined APEC and became more interested in the Asian region. The main cooperation topics in bilateral agreements among these countries include education, geology, natural resources, investment promotion, health, taxation, and in the last few years, negotiations have started for a Free Trade Agreement (FTA).

In terms of this agreement, the first round of negotiations started in August 2017, while the second and third ones are taking place during 2018 (April and December). It is important to mention that India has been mainly exporting to Peru motor vehicles, iron and steel products, cotton and manmade yarn, drugs formulations, iron and steel, auto tyres and tubes, etc.; all these constitute key inputs for the Peruvian industry, and there is also considerable potential for Peru to import technological goods for promoting the digital transformation of its firms. Peru’s exports to India, on the other hand, consist of gold and copper to a great extent, and more recently of cocoa, grapes, coffee and fishmeal.

For India, Peru’s geographic location in South America would bring interesting opportunities, as it is located in the centre of the region, by the Pacific Ocean.

Lima, the capital city, is currently a hub for different operations, which could be useful for India to reach more markets. Therefore, both countries could become strategic partners to continue growing together.

In addition, one aspect that needs to be discussed is related to the new opportunities that emerge as a consequence of the exchange of goods and services between both countries in the context of the Information Society. Nowadays, information is considered an asset and it is almost freely available for people who manage to connect to the Internet. Technologies and several digitization processes have had a huge impact in different aspects of our daily lives, and trade is not an exception.

According to the 2017 Information Economy Report (United Nations), a limited number of businesses in developing countries trade across borders; exports are usually driven by few firms; and a significant proportion of firms (70%) do not last more than a year as exporters. Explanations on these issues are related to limited geographical diversification of exports of sellers that are still offline. In this sense, the promotion of access to the Internet could contribute to change these patterns of international trade.

E-commerce (commercial transactions conducted electronically through the Internet) comes to play a fundamental role, as it has the potential of expanding market opportunities, providing new services, reducing transaction costs, having faster processes, etc.; in other words, it could constitute a tool to promote entrepreneurship, creativity and innovation.

However, in economic transactions it is necessary to have information on both the quality of traded goods, as well as on the reputation of the counterpart. In the case of e-commerce, given its characteristics, problems of information asymmetries are more evident than in traditional transactions. First, there may be no knowledge about how the data that is provided online would be used; as a consequence, this lack of information negatively influences customers' perceptions of security and trust. This asymmetry could become a great barrier to the development of ecommerce, but if there is a secure virtual environment (websites with clear information about the conditions of the transaction), the potential benefits of this tool would be higher.

In addition, there are information gaps related to products’ characteristics, since it is difficult to have complete details about their real quality. This failure can lead to opportunistic behaviour from one of the parties involved in e-commerce transactions, such as the distortion of information and violation of rules and regulations. In addition, online fraudulent transactions may occur since the identity of online business parties can not be fully verified.

Online risks are a growing concern, not only due to cyber attacks and problems derived from online transactions, but also because threats and vulnerabilities could discourage innovation and advance the Internet-based economy. This is precisely where efforts and experiences among India and Peru could be shared to strengthen both the relationship as well as the impacts of an FTA.

On the one hand, since 2013, India has been working on a national-level Cyber Security Policy, while Peru is still revising a national plan. FTA discussions should include this topic and take the opportunity to align both strategies, to enhance not only traditional trade but also e-commerce.

Information on e-commerce indicators in Peru can provide an idea of its development.<2> For instance, only 15% of Peruvian firms buy goods and services through e-commerce; these firms are basically in the following sectors: information and communications, electricity supply and human health care. Regarding online sales, only 7% of firms reported using the Internet to sell their products, and the main sector is accommodation and food services; medium-sized firms are the ones using more electronic channels (as compared to large firms), which shows ecommerce could contribute for more inclusive trade.

In conclusion, we have seen that an FTA among India and Peru could benefit both parties but also these potential benefits may be higher if efforts are put in terms of e-commerce promotion as well as the enhancement of security in the digital world. Negotiations should also include these topics in order to achieve better outcomes.

<1> See

<2> Annual Economic Survey 2016 - National Statistics Office (Peru)

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