The utilization of trade preferences under the Peru-China FTA

Abstract

This paper analyzes the utilization and effects of the tariff preferences extended by China towards Peruvian exporters in the context of the Peru-China FTA. By taking advantage of a novel database of certificates of origin matched with the export declaration registers, the first part of the study documents the patterns of the degree of utilization of preferences by using granular data at the firm-product level. We find that after 10 years of the FTA implementation, even though in aggregate exported value terms the degree of utilization of these preferences has reached almost 100%, heterogeneity is very high among different sectors and different firm sizes. This is consistent with the idea that in order to take advantage of the FTA in the destination market, exporters have to pay a fixed cost, and large firms are the ones that are most likely benefited. Also, leaving aside metals and mineral products, that dominates exports from Peru to China, we find that almost one third of the exporting firms presented a low FTA utilization. In the second part of the paper we assess the impact of the treaty on firms export performance, using matching techniques at the firm level. In this first approximation to the effects of the FTA, we find that firms that benefited from the FTA registered an export value annual growth that is 10 percentage points larger than the counterfactual. Also, we found a reduction in the likelihood of exiting the market of a firm that exports products to the Chinese market, while there are no effects in terms of product diversification at the firm level.