Wide, Wide Pacific: The Australia - Peru FTA signals a new era for Australia in Latin America

Wide, Wide Pacific: The Australia - Peru FTA signals a new era for Australia in Latin America

Published 20 Aug 2018

While the Peruvian Football Federation gets friendly with Australia ahead of their upcoming match at the 2018 World Cup, off-the-pitch relations between the two countries are also at an all-time high.[1] On the 12th of February 2018 Australia welcomed its distant pacific neighbour to Canberra for the signing of the Peru-Australia Free Trade Agreement (PAFTA). Although it may not attract as many headlines as the Australia-Peru World Cup clash, finalising the PAFTA should be recognised as one of many recent milestones for Australia in its continued improvement of economic and cultural ties with Latin America, a region that for decades has been overlooked by Australian foreign policy-makers.

Despite a long period of diplomatic indifference, the PAFTA is representative of a significant shift in Australia’s stance towards not only Peru, but Latin America as a whole. By committing to the agreement in addition to signing the Trans-Pacific Partnership (TPP) and seeking entry into the Pacific Alliance, Australia has demonstrated that it is serious about expanding its relations with the continent. As such, Australia is increasingly in a position to benefit from the emergence of Latin American nations as economic players in the Pacific, acting as a conduit for trade between its economic partners in Asia and the newcomers from across the ocean.

An overview of the agreement: its outcomes and Peru

The PAFTA was announced by Prime Minister Malcolm Turnbull in Vietnam at the 2017 Asia-Pacific Economic Cooperation Summit. Prime Minister Turnbull stressed that “The region cannot close the door to the flow of goods, services, capital and ideas”.[2] For Australia in particular, what lies behind this door looks promising.

In 2016, Australia’s bilateral trade in goods and services with Peru totalled some AUD$590 million. This figure marked a 51.2 per cent increase in trade from 2015.[3] In light of the PAFTA’s broad range of outcomes, this trend can reasonably be expected to continue.

Highlights of the agreement include the opening of Peruvian markets to Australian dairy farmers, as well as the immediate removal of duty on a variety of Australian products, ranging from wine and wheat to pharmaceuticals and medical devices.[4] Additionally, within five years Peru will eliminate tariffs (up to 17 per cent) on Australian beef, allowing Australian exporters to compete with their US counterparts.[5] Educational links between the nations are also set to be strengthened, with the recognition of Australian degrees in Peru.[6]

The PAFTA, likewise, is good news for the Andean nation. Minister for Trade and Tourism, Enrique Ferreyros, stated that it was his nation’s “most ambitious so far”.[7] He hailed the significance of the PAFTA for Peru in gaining access to “one of the most important markets in the Asia-Pacific region.”[8] This access, according to some estimates, translates to a doubling of Peruvian agro-exporter output to Australian markets.[9]

Peru was an obvious choice for a new long-term partner in Latin America. Experiencing a huge expansion during the 2000s commodities boom, Peru’s economy has since stabilised and continues to grow steadily.[10] Unlike other boom and bust economies, the wealth that Peru amassed while enjoying the highest rates of growth in South America, was subsequently filtered back into broad economic reforms or used to bolster its foreign wealth reserves.[11]

Since then, vast portions of the country have been lifted out of poverty: between 2005 and 2010 the rate of poverty in Peru fell sharply by 18.7 per cent.[12] Crucially, once the boom had subsided, this trend continued with poverty rates increasing for the first time only last year after almost two decades of improvement.[13] Peru’s government has begun to extend its influence further afield, securing free trade agreements with the European Union (EU), the United States (US), and China, among others.[14] The country is now known, along with Chile, Colombia, Mexico, as one of the four Pacific Pumas; the collective of economically blossoming Latin American countries that have cooperated to sign the Pacific Alliance, a landmark trade pact which seeks to catapult these economies into the Asian century.[15]

It is plain to see why Australia would seek to capitalise on Peru’s good fortunes, as it has done with its neighbours in the Asia-Pacific region. However, Australia has traditionally been hesitant to establish economic ties with Latin American countries. To properly appreciate the importance of the PAFTA, particular regard should be paid to the broader historical context of Australian-Latin American relations.

Australia’s relationship with Latin America: from wilful ignorance to a free trade agreement – the case of Chile

In recent years, a rich literature on Australia-Latin America diplomacy and trade has developed, highlighting a multitude of complex factors and misconceptions that have played a role in stunting the growth between Australia and Latin America.

The case of Chile reveals a series of stuttered attempts at trade, exacerbated by the country’s 20th century instability. This contributed to the long-prevailing attitude that Latin America was closed for business, a key determinant in restricting later cross-pacific cooperation.

Of course, this belief was not the sole factor at play and, at times there existed very real barriers to trade. Australia and Latin America have shared a degree of comparative advantage in commodities, and there is no doubt that geopolitical alliances and slow trade liberalisation, coupled with the vast geographic distances between ports, have also had a hand in limiting exchanges.[16] Nevertheless, it was ultimately this ‘policy of benign neglect’ that was the decisive element in limiting the scope of Australian trade with the continent even once these practical difficulties had been done away with.[17]

In the first decades of the 20th century, trade began in earnest between Australia and Latin America. In its nascent stages, economic exchange occurred primarily with these same two countries: Chile was hungry for Australian coal to feed to its copper smelting operations, while Peru imported Australian wheat.[18] This was brought to a premature conclusion by World War I and the Great Depression.[19] In the decades following, policies of protectionism in the form of high tariffs prevented trade between Australia and Chile from recovering.[20]

After this period of inactivity, technological improvements that reduced the cost of shipping permitted Australia to restart its trade with Chile. The 1950s and 1960s started brightly for this enterprise, but it was brought to an abrupt end with the military coup that overthrew the Allende government in 1973, exactly when trade was at its highest.[21] So damaging was this experience that Australia and Chile did not regain trade volumes equivalent to that of the late 1960s until the early 1990s.[22]

These factors contributed to Latin America being regarded as too remote, too corrupt, and not worth considering for trade relations.[23] Australia’s relationship with Chile is a telling example of the effect that this perception had on Australian foreign policy in the region. Despite Chile’s eventual economic recovery, no significant measures were taken to re-establish links. The only thing holding the relationship together was mutual interests in the mining sector, which during the last two decades still made up 76 per cent of Australian investment in Chile.[24] Although Chile engaged in trade liberalisation under the Pinochet regime, relations were hamstrung by the military government’s restriction on international cooperation initiatives.[25] It was following Chile’s shift to democracy that the first official visit of a Chilean president, Patricio Aylwin, to Australia occurred in 1993.[26]

Only during the 1990s did voices within Australia begin to raise concern at the lack of attention that was being afforded to Latin America. The Standing Committee on Foreign Affairs, Defence and Trade addressed the Commonwealth parliament, pointing out that, while Australia made the most of its opportunities in Asia, “… little thought is given to the far-away countries of Latin America” and that this approach was “short sighted”.[27] Unfortunately, the warning was not heeded and the general disregard for the continent continued.

Eight years later, another committee acknowledged that Australia firms had effectively “… missed the boat on a range of opportunities in South America, especially in Brazil…”.[28] Other players in the Pacific did not, and China quickly overtook the US to become Brazil’s chief partner in trade.

Slowly, Australia started to rebuild its trust in Latin America. Domestically, a watershed moment in the process of mending ties with the region was the establishment of the Council on Australia Latin America Relations in 2001.[29] The council has worked to make up for lost time, funding books on these relations and providing grants for projects, with the aim of expediting a change in Australia’s dealings with Latin America.

Real diplomatic strides were taken following the visit of President Ricardo Lagos in 2003.[30] Lagos sought to dispel Australia’s perception of Latin America as a competitor in trade and used governmental discourse to spur on the reimagining of the greater Pacific Ocean as an important new region for economic growth.[31] In this sense, his visit was a key step in laying this nation’s free trade agreement with Australia. Despite these efforts, it was not until 2008 that Australia signed its free trade agreement with the then star of Latin American economies, Chile.[32] However, this was two years after Chile achieved the highest nominal GDP in Latin America.[33]

Chile’s trade agreement has had particular success insofar as it has permitted a number of Australian companies, beyond merely enjoying liberalised trade with Chile, to establish a base of operations in South America.[34] Upon the inception of the Chile-Australia free trade agreement, some commentators claimed that Australia had “finally discovered” Latin America. [35] Even so, it has taken another decade for a second agreement to be realised, suggesting how difficult it was to undo the damage caused by Australia’s indifference towards Latin America.

This slow change in Australia’s mindset is also observable in the asymmetrical links that persisted after agreement with Chile coming into effect. [36] For example, Lagos’ visit to Australia was positively reported upon by Chilean media but, while crucial in the rekindling of Chile-Australia relations, was mostly overlooked by the Australian press. More telling still, three of the last five Chilean presidents have made the journey across the Pacific; however there has been no reciprocal state visit by an Australian prime minister to Santiago.[37]

In contrast to the Chilean case, the PAFTA suggests that Australia has moved beyond testing the waters with Latin America. Concurrently to negotiating the PAFTA, Australia signed the TPP and continued working to join the Pacific Alliance. It is precisely through this paradigm that the PAFTA’s importance can be understood: not as another tentative step towards trade with the broader Pacific region, but rather a deliberate move to reinforce Australia’s new role as a stepping stone for trade between Asia and Latin America.

The PAFTA and beyond: Australia’s new role in the Pacific

This rethinking of Australia’s Asia-centric orientation in the Pacific puts Australia in a unique position. The Asian Century: White Paper recognised that, if it aligns itself correctly, Australia should seize the chance to act as the “connecting rod” between both sides of the Pacific, particularly if it takes part in the Pacific Alliance.[38] Given that this is now within reach, Australia appears ready to embrace its new role in the Pacific and gain maximum benefit from its neighbours, both near and far.

In the lead up to signing the PAFTA, a new embassy was opened in Bogotá, to service Colombia and Venezuela and new flight routes between the continents were established.[39] In light of the great strides taken to overcome the diplomatic inertia of the past, these occurrences may now seem common place. However, together with the signing of the PAFTA, they add to the sensation that these last few years symbolise a turning point in Australian foreign policy strategy with Latin America

Projections for the future of Australia’s trade with Latin America are overwhelmingly positive.[40] Now, having shed the misconceptions that stifled past attempts, Australia can realise its potential with one of the fastest growing regions in world and redefine itself within an increasingly wide Pacific.

By Jake Kite


[1] Adams, David (2018), Peru Has Sent Australia A Bloody Lovely Message Before Our World Cup Clash, < https://www.pedestrian.tv/sport/peru-australia-world-cup-video-message/>, 25 May 2018

[2] Murdoch, Lindsay (2017), APEC summit: Turnbull announces trade agreement with Peru, <https://www.smh.com.au/politics/federal/apec-summit-turnbull-announces-trade-agreement-with-peru-20171110-gzifwj.html>, 25 May 2018

[3] Foong, David et al (2017), Potential Peru-Australia Free Trade Agreement: A step forward for exports into Latin America, <https://www.claytonutz.com/knowledge/2017/june/potential-peru-australia-free-trade-agreement-a-step-forward-for-exports-into-latin-america> para. 2, 25 May 2018

[4] Department of Foreign Affairs and Trade (2017), Peru-Australia Free Trade Agreement: Outcomes at a glance, < http://dfat.gov.au/trade/agreements/not-yet-in-force/pafta/pafta-outcomes/Documents/outcomes-at-a-glance.pdf>, 25 May 2018

[5] Fell, James (2018), Peru-Australia Free Trade Agreement in Agricultural Commodities, Vol. 6, No. 1, 18-19

[6] Department of Foreign Affairs and Trade (2017), Peru-Australia Free Trade Agreement Outcomes: Education services, < http://dfat.gov.au/trade/agreements/not-yet-in-force/pafta/pafta-outcomes/Documents/outcomes-education-services.pdf>, 25 May 2018

[7] Andean Airmail & Peruvian Times (2018), Peru-Australia Trade Agreement “Most Ambitious So Far”, < https://www.peruviantimes.com/17/peru-australia-trade-agreement-most-ambitious-so-far/30470/>, 25 May 2018

[8] Ibid

[9] Ibid

[10] Instituto Nacional de Estadística e Informática (2016), Panorama de la Economía Peruana 1950-2015, 13 < https://www.inei.gob.pe/media/MenuRecursivo/publicaciones_digitales/Est/Lib1359/index.html>, 25 May 2018

[11] The Economist (2014), Oil and Trouble, < https://www.economist.com/finance-and-economics/2014/10/04/oil-and-trouble> , 25 May 2018

[12] La República (2011), Probreza se redujo a 30% en el 2010, <https://larepublica.pe/economia/510296-pobreza-se-redujo-a-30-en-el-2010> , 25 May 2018

[13] Michael Krumholtz (2018), Peru poverty rate rises for first time in nearly two decades, <https://perureports.com/2018/04/25/peru-poverty-rate-rises-for-first-time-in-nearly-two-decades/> , 20 June 2018

[14] León Romero, Luciana (2013) Acuerdos Comerciales del Perú, Imprenta del Congreso de la República: Lima < http://lucianaleonenaccion.com/libro.pdf> 25 May 2018

[15] The Economist (2014), Pacific Pumas, < https://www.economist.com/special-report/2014/11/13/pacific-pumas> 25 May 2018

[16] Abbott, Malcolm & Alexis Esposto (2014) “Complexity in Trade Relations: Australia and Latin America in Journal of International Agricultural Trade and Development, Vol. 10, No. 2, 183-201

[17] Carr, Barry & John Minns (2014) Australia and Latin America: Challenges and Opportunities in the New Millennium. ANU Press: Canberra, xx

[18] Abbott, Malcolm & Alexis Esposto (2014) “Complexity in Trade Relations: Australia and Latin America in Journal of International Agricultural Trade and Development, Vol. 10, No. 2, 183-201

[19] Ibid

[20] Ibid

[21] Ibid

[22] Ibid

[23] Esposto, Alexis & John Fien (2016) “Rediscovering El Dorado: Australia’s Past and Future Trade Relations with Latin America” in Kath, Elizabeth (1st ed.) Australian-Latin American Relations: New Links in a Changing Global Landscape. Palgrave Macmillan: New York, 105-129

[24] Irene Strodthoff (2014) Chile and Australia: Contemporary Transpacific Connections from the South. Palgrave Macmillan: United Kingdom, 5

[25] Ibid, 6

[26] Ibid, 6

[27] Senate of Australia (1992), Standing Committee on Foreign Affairs, Defence and Trade, Australia and Latin America, Canberra: Commonwealth of Australia, 4. <http://www.aph.gov.au/Parliamentary_Business/Committees/Senate_Committees?url=fadt_ctte/completed_inquiries/pre1996/aust_latin_america/index.htm.>

[28] Joint Standing Committee on Foreign Affairs, Defence and Trade (2000), Building Australia’s Trade and Investment Relationship with South America, Canberra: Commonwealth of Australia, 2. http://www.aph.gov.au/Parliamentary_Business/Committees/House_of_Representatives_Committees?url=jfadt/samer/samindex.htm. Emphasis added.

[29] Esposto, Alexis & John Fien (2016) “Rediscovering El Dorado: Australia’s Past and Future Trade Relations with Latin America” in Kath, Elizabeth (1st ed.) Australian-Latin American Relations: New Links in a Changing Global Landscape. Palgrave Macmillan: New York, 105-129

[30] Irene Strodthoff (2014) Chile and Australia: Contemporary Transpacific Connections from the South. Palgrave Macmillan: United Kingdom

[31] Ibid, 82

[32] Kenyon, Don & Pierre van der Eng, From strangers to partners in the hemisphere: New Prospects in Australia’s Economic Relations with Latin America

[33] World Economic Forum (2009), The Global Competitiveness Report 2009-2010, < https://web.archive.org/web/20101030003958/http://www.weforum.org/pdf/GCR09/GCR20092010fullrankings.pdf>, 25 May 2018

[34] Kenyon, Don & Pierre van der Eng, From strangers to partners in the hemisphere: New Prospects in Australia’s Economic Relations with Latin America, 22

[35] Kath, Elizabeth & Raul Sanchez Urribarri (2012), Australia finally ‘discovers’ Latin America; time now to forge relationships, < https://theconversation.com/australia-finally-discovers-latin-america-time-now-to-forge-relationships-9481>, 26 May 2018

[36] Irene Strodthoff (2014) Chile and Australia: Contemporary Transpacific Connections from the South. Palgrave Macmillan: United Kingdom, 105

[37] Ibid, 97

[38] Australian Government (2010), Australia in the Asian Century: White Paper. Canberra, 208-9

[39] Department of Foreign Affairs and Trade (2017), New Australian Embassy in Colombia,
< http://dfat.gov.au/news/news/Pages/new-australian-embassy-in-colombia.aspx>, 25 May 2018;

Mulligan, Mark (2017), LATAM’s Enrique Cueto makes good on a decades-old vision, <http://www.afr.com/lifestyle/travel/world/latams-enrique-cueto-makes-good-on-a-decadesold-vision-20171024-gz6xn3>, 25 May 2018

[40] Esposto, Aleix (2014), Latin America the overlooked trade giant of Australia’s G20, < https://theconversation.com/latin-america-the-overlooked-trade-giant-of-australias-g20-33944>, 25 May 2018