Chile, Peru trade seen immune to Hague border battle

By Patricia Velez

SANTIAGO, March 19 (Reuters) - Booming trade and investment flows between Chile and Peru are expected to forge ahead in the medium- to long-term despite a bitter maritime border dispute that has escalated to the Hague, analysts say.

Relations between the South American neighbors have been periodically rocky since the War of the Pacific in 1879-1883, and Peru on Thursday formally presented its arguments on the border issue at the International Court of Justice.

But the pair, among the most open economies in the region, sealed a free trade agreement earlier this month, and Chilean exports of fuel distillates to Peru and imports of molybdenum concentrates, crude oil and fish oil from its neighbor are seen unscathed.

"(Trade) is the last thing that will be affected," said Santiago Pedraglio, a political analyst and professor at Peru's Universidad de Lima. "The Chileans are doing great business in Peru and of course will want to keep doing so."

Peru filed its suit against Chile in the Hague in 2008 and a diplomatic battle looks set to rage on.

Chile says its maritime border with Peru is a horizontal line in the Pacific that was established in agreements signed in 1952 and 1954, and President Michelle Bachelet said on Thursday Chile was ready for the case and "knows it is right."

Peru claims that those are not border demarcation pacts, but rather fishing agreements between both countries, and says the border should be considered as a diagonal line equidistant between both countries.

Chile has reached more than 50 free trade pacts with trading partners, including the United States, European Union and China and this week started talks with India.

In 2008, Chilean exports to Peru rose 46 percent from a year earlier to $1.51 billion, while imports from Peru rose 10 percent to $1.86 billion, taking the exchange of trade between the two countries to $3.37 billion, up 24 percent from a year earlier, according to Chilean customs data.


The trade exchange between the two countries has nearly quadrupled since 2003.

Chilean businesses invested at least $5.5 billion in Peru between 1990-2008, making Peru the No.3 destination for Chilean foreign investment, according to Peruvian government data.

Chilean retailers, like regional giant Cencosud (CEN.SN) -- which controls the biggest supermarket chain in Peru -- as well as Falabella FAL.SN and Ripley (RIP.SN) have invested heavily in the prosperous Peruvian market in recent years, making the country central to their Latin American expansion plans.

Peru's economy, which grew 9.8 percent last year, its fastest rate in 14 years, will likely be the only economy in the region to escape recession in 2009, a senior World Bank official forecast last week.

But Chile's economy, which expanded 3.2 percent in 2008, practically ground to a halt in the fourth quarter as global financial crisis bit, and many analysts now expect to see a contraction this year for the first time since 1999.

But the trade benefits are mutual.

"Peru's economic boom will be very welcome in Chile, but that boom also depends on a strong trade relationship with Chile," said Roberto Duran, a political science professor at Santiago's prestigious Universidad Catolica.

"Because of the existing (trade) ties ... I think Peru will also benefit from maintaining good relations with Chile."

(Additional reporting by Teresa Cespedes and Marco Aquino in Lima. Editing by Simon Gardner and Kenneth Barry)