Table 2.

Trade and investment liberalization events and market developments in Peru and Bolivia

Both countries have progressed through successive stages of trade liberalization namely protectionism, unilateral liberalization, accession to the multilateral system (WTO) and more recently bilateral and regional free trade agreements.

Peru

Unilateral liberalization: Prior to the 1990s high levels of protectionism existed with high tariffs and import bans, with a 66 % tariff average in 1989, and strict controls on foreign investment. Unilateral liberalization began in 1990 through extensive economic reforms. This included tariff reductions (maintaining a 25 % tariff on soft-drinks), the elimination of most import prohibitions, strengthened customs procedures, the privatization of state-owned food enterprises, and the establishment of independent institutions to regulate market competition, intellectual property rights, and foreign investment. In 1993 foreign capital flows and currency exchanges were liberalized. By 1998 the average tariff rate was 13.5 % with no import prohibitions in place.

Multilateral liberalization: Already a member of the General Agreement on Tariffs and Trade (GATT) system, on January 1st 1995 Peru acceded to the WTO. Under Peru’s General Agreements on Trade in Services (GATS) commitments, sectors relevant to processed foods including advertising services, wholesale trade services of beverages, and retailing services of beverages were fully liberalized with the exception of commercial advertising material produced outside of Peru.

Regional and bilateral liberalization: Since 2004 Peru has entered into multiple PTAs including intra-regional (e.g. MERCOSUR), extra-regional (e.g. European Union) and bilateral (e.g. US) agreements. The US-Peru FTA was the second of such agreements (the first being MERCOSUR), but is likely to have had the most significant implications for Peru’s soft-drink market given that the two largest transnational soft-drink companies (Coca-Cola Company and Pepsico) are US firms. It is also similar to CAFTA and NAFTA (i.e. containing similar provisions) and these agreements had demonstrated impacts on processed food consumption in previous analyses [27, 40, 23]. The US-Peru FTA eliminated a 25 % tariff on soft-drinks for US firms, while the average MFN tariff rate (i.e. for other WTO trade partners) was 6 % in 2013.

General market description and developments: Prior to 1999 the US-firm Coca-Cola Company (CCC) and the Peruvian-firm Corp JR Lindley were the two major competitors in the Peruvian soft-drink market. The two leading brands were Coca-Cola and Inca Kola. Today the soft-drink market is dominated by two firms. The first was formed in 1999 through a US$200 million merger between the CCC and Corp JR Lindley (CCC-CRL), and had a total market share of 49.8 % in 2013. The second, the Peruvian firm Aje Group, had a market share of 29.7 % the same year. A third Pepsi-Cola Panamericana Peru SRL, a subsidiary of the US-firm Pepsico, had a market share of 9.2 %. CCC-CRL has made a number of significant investments in domestic production and bottling facilities, including acquisition of the bottler Embotelladora Latinonamericana in 2004, and further investments in ‘mega’ production plants and distribution facilities. In 2014, the CCC announced a US$1 billion, 5-year, investment in its Peruvian operations. Prior to 2006 the Peruvian soft-drink market was undiversified with firms competing for market share of the carbonates market. Since then, both CCC-CRL and Aje group have diversified their product mix, with significant increases in sales of bottled water, juice, and sports & energy drinks.

Bolivia

Unilateral liberalization: Following a long period of economic instability, in 1985 a newly-elected Estenssoro Government implemented its New Economic Policy that transformed Bolivia from a relatively inward-orientated state-capitalist economy to a more liberalized and privatised one. This included the elimination of quantitative restrictions on imports and the adoption of a uniform 10 % tariff rate. In 1993 under the ‘capitalization’ agenda of the Lozada Government, foreign investment restrictions were relaxed and many state-owned enterprises underwent partial privatization.

Multilateral liberalization: As a member of the GATT system in September 1995 Bolivia acceded to the WTO. Subsequently in December 1996 Bolivian legislation was implemented to establish free importation with no prior licensing, import quotas or other non-tariff measures. Bolivia’s average applied MFN tariff rate fell from 9.7 % in 1999 to 8.2 % in 2005, with few non-tariff barriers. Under the GATS agreement Bolivia made commitments in five of the 12 sectors covered, although sectors most relevant to processed foods were excluded.

Regional and bilateral liberalization: Bolivia is a member of the Andean Community (a custom’s union with Colombia, Ecuador and Peru). It has entered into preferential trade agreements with Mexico and the MERCOSUR group of countries. As a member of the Bolivarian Alternative for the Americas (ALBA) Bolivia aligns politically with other socialist governments in the region (Cuba, Ecuador and Venezuala). This group partly aims to create alternative regional trade initiatives. In 2008, Bolivia withdrew from trade talks with the European Union and later from talks with the United States and Canada.

General market description and developments: Through franchising arrangements the US-firm Coca-Cola Company (CCC) has dominated Bolivia’s soft drink market, with a commercial presence since 1943. In 1995 the franchise Vascal and various bottling operators were acquired by Embotelladoras Bolivianas Unidas SA (EMBOL), a CCC subsidiary, using capital provided by Coca-Cola Embonor (Chile). In 1997, Coca-Cola Embonor acquired an additional 18.7 % of EMBOL to control 99.9 % of the subsidiary in Bolivia. EMBOL owns seven factories with an annual production capacity of 155 million unit cases (approx. 880 million litres) for its 12 brands. Through its distribution network the company supplies 75,000 retailers. This infrastructure makes EMBOL, and thus the CCC, the largest manufacturer and distributor of soft drinks in the country with an overall soft drinks market share of 58.3 % in 2013. Cerveceria Boliviana Nacional is the national franchise manufacturer and distributor of Pepsi products, and the second leading market player with a market share of 17.2 % in 2013.