Peru and Mexico Wednesday signed a free trade agreement aimed at providing tax benefits to boost bilateral trade.

Speaking at the signing ceremony, Peruvian President Alan Garcia praised the deal as "a preliminary step toward a larger agreement," referring to the intention of including Chile and Colombia in the deal.

"It will be a profound integration of four countries in the area of goods, services, products and people in order to grow together towards Asia and the world," Garcia said.

With the pact taking effect in July, bilateral trade is expected to rise by nearly 40 percent as it grants preferences to 12,000 tariff items, a sharp increase compared with 700 products included in the 8th Economic Complementation Agreement (ACE) signed by the two countries in 1987, said Eduardo Ferreyros, Peruvian minister of foreign trade and tourism.

Bilateral trade between Peru and Mexico stood at 1.46 billion U.S. dollars in 2010, with a surplus of more than 300 million dollars in favor of Mexico.