WORLD TRADE
ORGANIZATIONWT/WGTI/W/47
8 July 1998
(98-2711)
Working Group on the Relationship
between Trade and InvestmentOriginal:  Spanish
COMMUNICATION FROM PERU
The following communication, dated 17 June 1998, was received from the Permanent
Mission of Peru with the request that it be circulated to Members.
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Bilateral Treaties for the Promotion and Reciprocal Protection
of Investment:  The Case of Peru
1. Background
In 1990, after two decades of pursuing a strictly regulatory and restrictive policy on foreign
investment, Peru decided to adopt a policy of promotion of external capital flows.  This is taking place
in the context of a process of structural reform, initiated for the purpose of liberalizing andderegulating the economy by reconstructing the relationship between the public and private sectors,
following a reappraisal of the market and competition as essential factors in the efficient allocation of
resources.  In this model, growth is private sector -driven and the treatment of foreign capital is based
on the principle of equality.
2. The Foreign Investment Promotion Act
Against this background, the Foreign Investme nt Promotion Act was promulgated for the
purpose of creating a climate favourable to foreign investment, in recognition of the fact that bothforeign investment and foreign technology are essential for dynamic economic growth.
The principal characteristics of the Act are as follows:
• It recognizes the need to remove obstacles to and restrictions on investment and to
guarantee equality of rights and obligations as between foreign and domesticinvestors.
• It signals that the State is promoting and guaranteeing existing and future foreign
investment in the country in all sectors of economic activity and in anyentrepreneurial or contractual form permitted by the law.
• It eliminates the need for prior authorization and performance requirements, as well
as acknowledging the right to purchase shares owned by domestic investors.WT/WGTI/W/47
Page 2
• It establishes that foreign investors enjoy the rights to freedom of trade and industry
and freedom to export and import.1
• It guarantees the right of foreign investors to the free transfer of capital, without the
need for prior authorization.
3. The bilateral investment treaties
However, it is not sufficient for a country to offer foreign investors flexible, open and
stimulative legislation.  One of the important factors influencing the decision to invest is the
protection of the investment.
It was therefore necessary to send the international community a clear signal concerning the
political intention to respect the domestic legislation, which grants foreign investors a series of
internationally recognized guarantees and rights, and to keep it unchanged over a reasonable period oftime.
In these circumstances, the bilateral treaties for the promotion and reciprocal protection of
investment perform a dual function:  (a) they constitute a means of offering these guarantees:  and
(b) they form a fundamental part of the national policy for attracting foreign investment.
Between 1992 and 1996, Peru signed 26 bilateral treaties for the promotion and protection of
investment.
2
4. By way of conclusion
The experience accumulated during these years appears to indicate the following:
4.1 Although there is no doubt that bilateral investment treaties can be important in considering
country risk, this is only one of the numerous factors that the investor takes into account when
deciding where to invest.  The bilateral investment treaties are necessary but not sufficient.
4.2 Even where there are treaties offering protection, the investment decision will be mainly
determined by the existence of investment opportunities with real market possibilities and adequate
levels of return, in a context of macroeconomic stability.  Once these and other factors have been
taken into account, the investor will seek stability  in the rules that govern his investment and the
assurance of effective protection against non-commercial risks.
4.3 The lack of a bilateral treaty may not be the determining factor in investment flows. This can
be illustrated by two examples, namely Chilean and United States investment in Peru.
                                                     
1Subsequently, the Constitution approved by Congress in 1993 recognized the principles of freedom of
enterprise, trade and industry, free competition, equality of treatment for domestic and foreign investment andfreedom to hold and dispose of foreign currency.
2Peru has signed bilateral treaties of this type wi th Argentina, Australia, Bolivia, China, Colombia,
Czech Republic, Denmark, El Salvador, Germany, Repub lic of South Korea, Romania, Slovak Republic, Spain,
Sweden, Switzerland, Thailand, United States (OPIC), and Venezuela.WT/WGTI/W/47
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4.3.1 Between 1993 and 1996, the flow of Chilean capital into the Peruvian economy
amounted to US$1,000 million, if direct investment and portfolio investment are taken into
account.3  However, no bilateral investment promotion and protection treaty has yet been
signed.
4.3.2 In the case of United States investment, the stock of direct investment increased from
US$622 million in 1992 to US$1,456.62 million in 1997.  Moreover, we should also consider
other forms of investment, such as the flows of capital intended for oil company exploration
operations.  North American companies have announced and, in many cases, committed up to
US$2,978.2 million in investments over the next few years.  What is remarkable is that Peru
and the United States have not even begun negotiations on the signing of a bilateral
investment promotion and reciprocal protection treaty.  On the other hand, the Government of
Peru has signed a financial cooperation agreement with OPIC, on the basis of which the
insurance agency has been providing cover since 1994.  In 1996 alone, OPIC issued insurance
covering US$855.3 million of investment.  At the same time, some United States companies
have requested risk insurance from MIGA, a multilateral agency of which Peru has been an
active member since December 1991.4
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3According to the estimates of the Chilean Chamber of Commerce total Chilean investment in Peru
could amount to US$2,000 million.
4Altogether, the Government of Peru has approved 14 requests submitted by foreign investors to
MIGA, for a total investment of US$303.51 [Sic] million.