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Hague Court Grants Peru Swath of Sea the Size of Costa Rica

Jan. 27 (Bloomberg) -- The International Court of Justice in the Hague redrew the maritime border between Chile and Peru, granting Peru sovereignty over a stretch of sea the size of Costa Rica and settling a dispute that stems from a war 130 years ago.

The judges recognized the existing maritime limit that runs west from the land border for 80 nautical miles, court President Peter Tomka said in a televised reading of the decision. After that, a new border runs south-west to a point that is about 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, the world’s largest exporter of fishmeal after Peru, has exercised sovereignty in just over half of that area closest to its coastline and considered the remainder as high seas. Under today’s ruling, Peru wins control over 70 percent of the disputed waters, President Ollanta Humala said.

“I deeply disagree with the court’s decision, which represents a tragic loss for our country,” said Chilean President Sebastian Pinera. However, “this is a binding verdict that Chile accepts and will comply with, though gradually and with understandings between both parties.”

War Legacy

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.

“After this verdict, we will be able to modify the Peruvian map for the better,” Humala said. “This involves national pride,” he said, while calling it a “victory of peace.”

Humala had 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.

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.

Economic Integration

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, while Chile has become the main destination for Peruvian investment and vice versa.

“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.

Bilateral Investment

Chilean retailers SACI Falabella SA, Ripley Corp. SA 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, 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, 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.

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.

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 addition to the 2006 free-trade accord that took effect in March 2009, the two countries have subsequently 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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