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Pisco Liquer Dispute between Chile and Peru (PISCO)

CASE NAME:Pisco Liquor and IPRs


1. The Issue

Pisco is as Peruvian as llamas and arroz con pollo. APeruvian meal is not complete without a pisco sour. "The piscosour is a cocktail made with a shot of pisco, a sprinkle of sugar,a bit of egg white and a splash of lime juice, then either blendedor served over crushed ice, with a dash of bitters." However,pisco's future has been marred by agrarian reform, economic andpolitical turmoil, new and more profitable crops, water pollution,and a trade dispute with Chile over its namesake.

2. Description

The conditions for pisco were laid centuries earlier by theadept engineering of the Incas in the Ica region on thesouthwestern Peruvian coast. Ica was a dry, infertile desertregion before the Europeans arrived in the sixteenth century. TheInca's civil engineering laid the foundation for futureagricultural exploitation in the Ica region. The Europeans actedon the clue left by the Inca emperor Pachacutec and channeledAndean meltwaters to where they planned to plant their vineyards. Henk Milne described the Incan legend of Pachacutec:
When the Inca emperor Pachacutec offered his hand in marriage to a fair maiden from the Peruvian hinterland and was turned down in favor of her plebeian boyfriend, he might have been forgiven for being miffed. But instead of achieving the consummation of his desire by, say, knocking off the rival and insisting on the nuptials - or some other such straightforward monarchical solution so common in those simpler times - he gave in gracefully. In fact, just to show how sporting of a chap he was, her offered to grant the lady her dearest wish. She, evidently not be a material girl, said that her dream was that the waters of the River Ica be brought to her hometown in the desert. Fifteen days later, forty thousand laborers wiped their collective brow, dropped their shovels and sat down beside the 30-mile canal they had just dug. The heart-smitten Supreme Panjandrum dubbed this waterway the "Achirana".
The Achirana provided the Europeans with a sufficient watersource to plant vineyards with the Negra Corriente grape in 1547.The vineyards were so prosperous that within ten years, Peru hadthriving wine exports to Argentina, Chile, and Spain. Over 100,000acres of vineyards flourished in the Ica region. The cultivationof the grape in Latin America was a result of Peru's success and itis believed that the widely grown Criolla grape of Argentina andthe Pais grape of Chile are descendants of the Negra Corrientegrape originally brought over to the new world by the Spanish.

The Incas already had a favorite drink called chicha, madefrom fermented corn and water. Chicha was a ceremonial drink forthe Incas and made only by women, the so-called "Chosen Women."
One of the chief occupations of the Chosen Women was the making of chicha for the Inca and his nobles and priests, and the making of it required the crushing of the sprouted corn after it had been boiled. Much crushing was required because much chicha was drunk. Drunkenness was required, in fact, at Inca feasts and ceremonies, since the liquor of corn was as sacred as the kernel they named "life giver". No ceremony began without the Inca lord or priest's pouring chicha on the ground to honor the corn goddess, Mama Sara.
The Europeans, however, craved their native brandies. "Through trial and error they found a grape called the Quebrantaproduced a pure, highly potent, aromatic brandy which eventuallybecame known by the port from which it was exported to gratefuldrinkers abroad: Pisco."

By the nineteenth century, a scourge of phylloxera (plantlice) eradicated many Peruvian vineyards which were replaced withcotton and other fruit crops. "While the Argentine and Chileantopographical boundaries of mountain, desert, sea and ice proved tobe natural palisades against the spread of the pest, not so inPeru. Political and economic upheavals took their toll in thetwentieth century. Agrarian reforms in the 1970s abolished largeestates and created cooperatives. "The various forms ofcooperatives appeared to have had little impact on the creation ofemployment opportunities in agriculture. As a consequence, overhalf the rural population at the poorer end of the scale benefitedlittle, and the disparity of income distribution may haveincreased." Today, water thirsty crops such as rice and sugar-cane are taking slowly taking the place of grapes in the Icaregion. According to Salomon Diaz, president of the agro-industrial committee of the exporters' association, "Peru's coasthas the great advantage that, because there's no rain, irrigationis man-managed. With high technology methods -- drip or sprinklersystems -- one could irrigate four times the area with the sameamount of water we're now expending on crops we'd do better toimport."

Even if farmers wanted to reinvest in their land, less than 10percent actually hold the legal title to the land, a requirementfor collateral. Moreover, financing additional irrigationequipment costs approximately 18 percent a year. Unlike Peruvianfarmers, Chilean farmers are allowed to import irrigation equipmentand discount the import tariff upon exporting the cash crop.

Water pollution is an enormous problem in all parts of Peru. A new national environmental agency is being created as a result ofa $2 million donation by the Inter-American Development Agency. "It is expected that a significant improvement in legal mechanismswill be enforced by 1995." Peru's abysmal water conditions inthe Ica region are a result of domestic and industrial waste,including mining pollution. The cholera epidemic spread quickly in1991 due to the poor sanitary conditions.

While a trade war is not likely to break out, there is agrowing trade dispute between Peru and Chile over who had the rightto use the name pisco. "Peruvians hold a deep-seated nationalpride in pisco, which they make from the cream of the grape harvestand have been drinking at parties and rowdy peasant festivals formore than 400 years." Chilean pisco has already found smallexport markets in the United States and Europe. Peruvian exportersare hampered by hyper-inflation and an unfavorable exchange rate. "Peru is planning action under international patent agreements --the same ones that guard copyrights over everything from computersto pharmaceuticals - to keep the pisco name exclusively forPeru."

3. Related Cases

Keyword Clusters

(1): Trade Product = LIQUOR
(2): Bio-geography = TROPical
(3): Environmental Problem = HABITat LOSS

4. Author: Pamela Oakes

B. LEGAL Clusters

5. Discourse and Status: DISagreement and Allegation [ALLEGE]

"Pisco is now at the center of a growing trade dispute betweenPeru and neighboring Chile over which country has the right tomarket the liquor under that name." While both countries claima historical legacy to pisco, the underlying cause of the disputeis over exports and control over the market.Chile has already cultivated a small export market for its pisco,mainly to the U.S. and Europe. Peru, however, has been constrainedby economic and political turmoil and unable to capture an exportmarket for its pisco.

6. Forum and Scope: GATT and BILATeral

Peru is planning take this dispute before the internationalcommunity. "The Peruvian government is planning to take actionunder international trade agreements, possibly resorting to theworld trade body GATT, to stop Chile from marketing any drink underthe name of pisco."

7. Decision Breadth: 107 (GATT members)

A WTO decision granting Peru the sole right to export a clear,brandy-like liquor under the name pisco would affect all members ofthe WTO. This case could set a precedent for additional countriesto claim exclusive rights to a so-called cultural commodity.

8. Legal Standing: TREATY

Both Peru and Chile are members of the WTO and had agreed uponjoining the GATT to abide by its rules.


9. Geographic Locations

Domain: South America [SAMER]
Impact: PERU
To be more precise, the Southwestern coast of South America,including Peru and Chile.

10. Sub-National Factors: NO

11. Type of Habitat: DRY

IV. TRADE Cluster

12. Type of Measure: Intellectual Property [IPROP]

A product standard is pending the outcome of the trade disputeand will most likely be determined by the WTO. According toGodofredo Gonzalez del Valle, whose family has been making piscofor four generations, it is all in the stomp. "To make real pisco,you have to take your shoes off, crush the grapes and let itferment in clay bottles. In Chile they make something calledpisco, but it doesn't taste as it should." Chilean pisco issweeter and slightly weaker that Peruvian pisco. "Only Peru hasthe soil, the climate, and the tradition in making pisco thatgive(s) our drink a special taste, and which allow(s) us to call itpisco", according to Jaime Alvarez Calderon who is in charge ofPeru's multilateral economic negotiations office."

13. Direct vs. Indirect Impacts: INDirect

14. Relation of Trade Measure to Resource Impact

a. Directly Related: YES LIQUOR
b. Indirectly Related: YES MINE
c. Not Related: NO
d. Process Related: YES BIODIVersity loss
The water pollution from nearby mines threatens the ability toproduce the grapes to make pisco. "Water resources are severelyoverburdened with residues" from mines in the region, fishmealplants, "as well as from the dumping by numerous 'informal',unregulated industries and households." Air pollution is alsoa severe problem. Harmful emissions from fishmeal processingplants have caused bronchial illnesses and have seriously damagedthe atmosphere. Moreover, sulfur dioxide emissions from copperplants have adversely affected the air.

15. Trade Product Identification: FOOD

16. Economic Data

Demand for Peruvian grapes and grape products is strong. TheUnited Kingdom imports grapes and Taiwan imports Tacma wineproduced in the Ica region.

17. Impact of Trade Restriction: LOW

18. Industry Sector: FOOD

19. Exporters and Importers: PERU and USA


20. Environmental Problem Type: Pollution Land [POLL]

21. Name, Type, and Diversity of Species

Name: Many
Type: Many
Diversity: 18,245 higher plants per 10,000 km/sq (Peru)

22. Impact and Effect

Water pollution from the mines threatens grape harvests. Thewater intended for irrigating and cultivating the vineyards isloaded with mining residue and chemicals. Water purification isnecessary for the survival of the vineyards. Air pollution must bedealt with immediately because of the threat to the health andsafety of local residents and workers. The dry air of the Icaregion is immobile because of the sea and the Andes mountain range.

23. Urgency and Lifetime: HIGH and over 30 years.

Eliminating river pollution as a result of mining isimperative. Because of the dry arid climate, chemicals areabsorbed into the local atmosphere and remain in the area.

24. Substitutes: SYNTHetic

Other brandy-like liquors made from grapes or chicha couldpossibly substitute although there is no substitute for culturalheritage.

VI. OTHER Factors

25. Culture: YES

Pisco has been part of Peruvian culture for over 400 years. To allow the elimination of suitable grapes or permit a lesserversion of it would abolish part of a culture and society. Piscois part of a traditional Peruvian meal. Pisco production has beenpassed from generation to generation and is a ritual in manyfamilies. The government promotes pisco as being Peruvian, usingthe slogan "Pisco es peruana" (Pisco is Pervian) on its culturecrusade in Peru and the rest of the world.

26. Human Rights: NO

27. Trans-Boundary Issues: NO

28. Relevant Literature

Atwood, Roger. "Sweet Liquor Sparks Bitter Trade Dispute." The Reuter Business Report. March 29, 1991.

Bowen, Sally. "Survey of Peru." Financial Times. September 29, 1993.

Comision para la Promicion del Peru. "Peru: Te espera." May, 1994.

Fussell, Betty. "Fare of the Country; Chicha, Peru's Favorite Drink." The New York Times. February 15, 1995.

McClure, Barney H. "The Vanishing Off-Season." Supermarket Business. January, 1995.

Milne, Henk. "A Walk on the Wild Side." LatinFinance. March 1993.

Milne, Henk. "Dancing with the demon; Peruvian liquor." LatinFinance. January 1995.

Muroi, Flora and Derek Fetzer. "Peru: Pollution Control Equipment." National Trade Data Bank. (Report Prepared for American Embassy, Lima, Peru). March 21, 1995.

Mylrea, Paul. "Blue Skies Flavour Chile's National Drink." The Reuter European Business Report. November 29, 1995.

Nyrop, Richard (ed.). Peru: A Country Study. Washington, DC: United States Government, 1981.

Pilling, David. "Survey of Peru." Financial Times. September 29, 1993.

Read, Jan. Chilean Wines. New York: Harper & Row, 1988.

Sociedad Peruana de Derecho Ambiental. Codigo del Medio Ambiente. Lima, Peru, 1992.

Sylva, Bob "A Plateful of Peru." Sacramento Bee. April 26, 1995.

"The Spring in the Step of the Llama." The Economist. November 13, 1993.

"UK: Peruvian Grapes Add Dimension to Imports." Grocer. January 8, 1994.

Walden Country Reports. "Chile." January 30, 1995.

"Wine From Peru May Appear in Taiwan." Central News Agency. August 15, 1985.