International Court Splits Disputed Waters in Chile-Peru Dispute

The International Court of Justice in the Hague ruled that Chile and Peru should split sovereignty over an area of sea the size of Sri Lanka off their coast, settling a dispute that stems from a war 130 years ago.

The judges recognized the existing maritime border that runs directly west from the land border for 80 nautical miles, said the court’s president Peter Tomka in a televised reading of the decision. After that, the new border runs south-west to a point that is 200 miles equidistant from the coast of the two countries.

Peru had claimed sovereignty over 66,680 square kilometers (25,745 square miles) of rich fishing waters off the two neighbors’ Pacific coast. Chile has exercised sovereignty over 57 percent of the area closest to its coastline and considered the remainder as high seas. Under today’s ruling, Chile’s loses control over part of that maritime territory.

The dispute dates from a war that ended in 1884 with Chile’s seizure of desert territories that later made it the world’s biggest copper producer. While the two countries signed a free trade accord in 2006 and about 180,000 Peruvians have emigrated to Chile for work, the legacy of the war that saw Lima sacked by Chilean troops still sours relations.

Peruvian President Ollanta Humala has tried to head off tensions, rejecting calls for people to hang the national flag outside their houses on the day of the ruling to avoid fueling a backlash against the Peruvians living in Chile.

Economic Consequences

During court hearings, Chile said the maritime border was established by treaties in 1952 and 1954. Peru argued they were fisheries agreements and not formal treaties.

Roberto Angelini, president of the northern Chilean fishing company Corpesca, estimated in November 2012 that an unfavorable verdict would transfer to Peru an area that represents 70 percent to 80 percent of the company’s catch.

Still, the integration of the two countries’ economies over the past decade reduces the risk that the ruling will have a lasting impact on trade and investment, said Juan Carlos Fisher, president of the Peru-Chile Chamber of Commerce in Lima. Bilateral trade has tripled since 2004 to about $3.1 billion, spurred by a free-trade agreement signed in 2006, while Chile has become the main destination for Peruvian investment and vice versa.

‘Mere Anecdote’

“The ruling will be a mere anecdote in the history of relations between Peru and Chile,” said Humberto Speziani, a director at the Peruvian Fisheries Society. “There’s been so much investment by Peru in Chile and vice versa. The maritime dispute is just an obstacle in the way of real integration” of the border area, Speziani said by telephone.

Chilean retailers SACI Falabella SA (FALAB), Ripley Corp. SA (RIPLEY) and Cencosud SA have opened stores across Peru and set up banking units as rising incomes fuel demand from Peru’s emerging middle class. Cencosud (CENCOSUD), Chile’s biggest retailer by sales, bought Peru’s largest supermarket chain from the Wong Group in 2007.

Lan Peru SA, a unit of Santiago-based Latam Airlines Group SA (LAN), is the country’s largest carrier.

Peru’s largest companies turned to Chile’s construction, finance and food industries for acquisition prospects in recent years as they outgrew their home market.

Breca Group bought Chilean cement producer Melon SA in 2009 while Grana y Montero SA acquired Enersis Compania Americana de Multiservicios in 2011, and Vial y Vives Ingenieria in 2012. That same year Banco de Credito, Peru’s biggest lender, bought Chilean investment bank IM Trust.

Bilateral Ties

The stock of Chilean foreign investment in Peru is about $14 billion compared with the $10 billion that Peruvian companies have invested in their southern neighbor, according to the Peru-Chile Chamber of Commerce.

More than 180,000 Peruvians reside in Chile, while Peru is the top tourist destination for Chileans, and about 5 million people cross the Tacna-Arica border each year, according to the chamber.

In 2006, the two countries signed a free trade agreement that took effect in March 2009. Two years later they created the Pacific Alliance with Colombia and Mexico to reduce barriers to trade and investment.

Chile increased has exports to Peru by 153 percent since 2004 to $1.59 billion in the first 11 months of last year, according to the chamber. Peru increased exports to Chile by 223 percent to $1.54 billion over the same period.

To contact the reporters on this story: John Quigley in Lima at jquigley8@bloomberg.net

To contact the editor responsible for this story: Andre Soliani at asoliani@bloomberg.net

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