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Pisco sour

Trade in South America
Pisco sour

Aug 24th 2006 | LIMA AND SANTIAGO

From The Economist print edition

Sweeter times ahead on the Pacific seaboard

LITTLE by little, South America is dividing itself into two very different trade blocks. Mercosur, based on Brazil and Argentina and recently joined by Venezuela, is relatively protectionist and suspicious of bilateral trade deals with the United States. Most countries on the Pacific seaboard are committed to free trade with both el norte and Asia. The latest piece in this jigsaw came on August 22nd, when Chile’s foreign minister, Alejandro Foxley, visited Peru’s capital, Lima, to discuss his country’s plan to rejoin the Andean Community, which it left in 1976.

This continental divide is far from absolute. Chile, with the most open economy in the region, is an associate member of Mercosur (it has a free-trade agreement with the block, but is not part of its putative customs union). So are Peru and Bolivia. Ecuador and especially Bolivia have reservations about closer ties with the United States. Not so Paraguay and Uruguay, although both are members of Mercosur.

But the drift is clear. In April Hugo Chávez, Venezuela’s president, pulled out of the Andean Community in protest at trade deals concluded by Peru and Colombia with the United States. Alan García, Peru’s new president, has been especially keen to draw Chile into the Andean group as a counterweight to Mr Chávez. In Lima Mr Foxley also signed a bilateral trade agreement with Peru.

Relations between Peru and Chile have long been difficult. Chile grabbed part of Peru and Bolivia in a 19th century war. Peru disputes their maritime border. Mr García has gone out of his way to improve relations, which were stormy under his predecessor. He shrugged off a campaign in the local press aimed at stirring ill-feeling over pisco, a brandy named after a Peruvian port but over which both countries claim the right of origin. “It makes no sense to not get along with a neighbour that is a good commercial partner,” says Luis Carranza, his finance minister.

For its part, Chile argues that South American countries need to pool their export efforts to be able to supply the volume of products demanded by China and other Asian countries. Chilean officials insist they will maintain their ties with Mercosur. Argentina, under Néstor Kirchner, is an especially difficult neighbour: in 2004 it unilaterally cut gas exports to Chile, and then this year raised taxes on them. But Argentina and Brazil are Chile’s most important local trading partners.

The biggest prize in this tentative re-alignment would be a rapprochement between Chile and Bolivia. Chile is short of energy, while Bolivia has huge natural gas deposits. But Bolivia wants Chile to restore its lost access to the sea. Peru would have to agree any deal, since any Bolivian corridor would be on its former territory. Last month, Chile scrapped import duties on most Bolivian products. But there’s plenty more to discuss over a bottle of pisco.

 source: The Economist