PISCO Case

Pisco Liquer Dispute between Chile and Peru (PISCO)


CASE NUMBER:145
CASE MNEMONIC:PISCO
CASE NAME:Pisco Liquor and IPRs


A. IDENTIFICATION

1. The Issue

Pisco is as Peruvian as llamas and arroz con pollo. A Peruvian meal is not complete without a pisco sour. "The pisco sour 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 blended or served over crushed ice, with a dash of bitters." However, pisco's future has been marred by agrarian reform, economic and political 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 the adept engineering of the Incas in the Ica region on the southwestern Peruvian coast. Ica was a dry, infertile desert region before the Europeans arrived in the sixteenth century. The Inca's civil engineering laid the foundation for future agricultural exploitation in the Ica region. The Europeans acted on the clue left by the Inca emperor Pachacutec and channeled Andean 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 water source to plant vineyards with the Negra Corriente grape in 1547. The vineyards were so prosperous that within ten years, Peru had thriving wine exports to Argentina, Chile, and Spain. Over 100,000 acres of vineyards flourished in the Ica region. The cultivation of the grape in Latin America was a result of Peru's success and it is believed that the widely grown Criolla grape of Argentina and the Pais grape of Chile are descendants of the Negra Corriente grape originally brought over to the new world by the Spanish.

The Incas already had a favorite drink called chicha, made from fermented corn and water. Chicha was a ceremonial drink for the 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 Quebranta produced a pure, highly potent, aromatic brandy which eventually became known by the port from which it was exported to grateful drinkers abroad: Pisco."

By the nineteenth century, a scourge of phylloxera (plant lice) eradicated many Peruvian vineyards which were replaced with cotton and other fruit crops. "While the Argentine and Chilean topographical boundaries of mountain, desert, sea and ice proved to be natural palisades against the spread of the pest, not so in Peru. Political and economic upheavals took their toll in the twentieth century. Agrarian reforms in the 1970s abolished large estates and created cooperatives. "The various forms of cooperatives appeared to have had little impact on the creation of employment opportunities in agriculture. As a consequence, over half the rural population at the poorer end of the scale benefited little, and the disparity of income distribution may have increased." Today, water thirsty crops such as rice and sugar- cane are taking slowly taking the place of grapes in the Ica region. According to Salomon Diaz, president of the agro- industrial committee of the exporters' association, "Peru's coast has the great advantage that, because there's no rain, irrigation is man-managed. With high technology methods -- drip or sprinkler systems -- one could irrigate four times the area with the same amount of water we're now expending on crops we'd do better to import."

Even if farmers wanted to reinvest in their land, less than 10 percent actually hold the legal title to the land, a requirement for collateral. Moreover, financing additional irrigation equipment costs approximately 18 percent a year. Unlike Peruvian farmers, Chilean farmers are allowed to import irrigation equipment and 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 of a $2 million donation by the Inter-American Development Agency. "It is expected that a significant improvement in legal mechanisms will be enforced by 1995." Peru's abysmal water conditions in the Ica region are a result of domestic and industrial waste, including mining pollution. The cholera epidemic spread quickly in 1991 due to the poor sanitary conditions.

While a trade war is not likely to break out, there is a growing trade dispute between Peru and Chile over who had the right to use the name pisco. "Peruvians hold a deep-seated national pride in pisco, which they make from the cream of the grape harvest and have been drinking at parties and rowdy peasant festivals for more than 400 years." Chilean pisco has already found small export markets in the United States and Europe. Peruvian exporters are 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 computers to pharmaceuticals - to keep the pisco name exclusively for Peru."

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 between Peru and neighboring Chile over which country has the right to market the liquor under that name." While both countries claim a historical legacy to pisco, the underlying cause of the dispute is 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 constrained by economic and political turmoil and unable to capture an export market for its pisco.

6. Forum and Scope: GATT and BILATeral

Peru is planning take this dispute before the international community. "The Peruvian government is planning to take action under international trade agreements, possibly resorting to the world trade body GATT, to stop Chile from marketing any drink under the 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 of the WTO. This case could set a precedent for additional countries to 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 upon joining the GATT to abide by its rules.

III. GEOGRAPHY Cluster

9. Geographic Locations

Domain: South America [SAMER]
Site: ANDES
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 dispute and will most likely be determined by the WTO. According to Godofredo Gonzalez del Valle, whose family has been making pisco for four generations, it is all in the stomp. "To make real pisco, you have to take your shoes off, crush the grapes and let it ferment in clay bottles. In Chile they make something called pisco, but it doesn't taste as it should." Chilean pisco is sweeter and slightly weaker that Peruvian pisco. "Only Peru has the soil, the climate, and the tradition in making pisco that give(s) our drink a special taste, and which allow(s) us to call it pisco", according to Jaime Alvarez Calderon who is in charge of Peru'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 to produce the grapes to make pisco. "Water resources are severely overburdened with residues" from mines in the region, fishmeal plants, "as well as from the dumping by numerous 'informal', unregulated industries and households." Air pollution is also a severe problem. Harmful emissions from fishmeal processing plants have caused bronchial illnesses and have seriously damaged the atmosphere. Moreover, sulfur dioxide emissions from copper plants have adversely affected the air.

15. Trade Product Identification: FOOD

16. Economic Data

Demand for Peruvian grapes and grape products is strong. The United Kingdom imports grapes and Taiwan imports Tacma wine produced in the Ica region.

17. Impact of Trade Restriction: LOW

18. Industry Sector: FOOD

19. Exporters and Importers: PERU and USA

V. ENVIRONMENT Clusters

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. The water intended for irrigating and cultivating the vineyards is loaded with mining residue and chemicals. Water purification is necessary for the survival of the vineyards. Air pollution must be dealt with immediately because of the threat to the health and safety of local residents and workers. The dry air of the Ica region 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 is imperative. Because of the dry arid climate, chemicals are absorbed into the local atmosphere and remain in the area.

24. Substitutes: SYNTHetic

Other brandy-like liquors made from grapes or chicha could possibly substitute although there is no substitute for cultural heritage.

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 lesser version of it would abolish part of a culture and society. Pisco is part of a traditional Peruvian meal. Pisco production has been passed from generation to generation and is a ritual in many families. The government promotes pisco as being Peruvian, using the slogan "Pisco es peruana" (Pisco is Pervian) on its culture crusade 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.


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