August 10, 2004

Engaging in Gas Diplomacy.

MABB is a registered TM.

Bolivia, in the hands of the current administration, has embarked into, what I consider, uncharted diplomatic waters. The Mesa administration, as part of its foreign, economic and domestic policy, has been pressing Chile to enter into formal negotiations concerning the issue of a sovereign access for Bolivia to the Pacific coast. This is not surprising, considering that Bolivian governments have been attempting this since Bolivia lost its sea access as a result of the Pacific War. But, what is out of the ordinary in this case, is the fact that Mr. Mesa is using Bolivia's natural gas resources to force Chile into the negotiating table. This I call Gas Diplomacy. Chile, on the other hand, has pressed its heels into the sand and hardened its line.

I only have one question about this topic: Is it going to work?

Background
The Bolivian claim to its lost coastline has been an issue since the day the country lost the 1879 - 1884 Pacific War to Chile and signed away its territory with the "peace treaty" of 1904. Since then, Bolivia has been trying to recover its coastline, ports and territory. Every Bolivian has been and is still raised to believe in the inalienable right to the sea. And, for all governments since then, the right to recover precious access to the sea is a must policy. So important is this issue for Bolivians that the two involved countries have not had formal diplomatic relations to this day. It is the thorn which complicates every other aspect of these two neighbors' turbulent relationship.

At the heart of the problem is Bolivia's claim to an unjust invasion and a carefully planned territorial expansion in the part of the Chilean government (conveniently aided by British and American economic interests). The reasons Chile carried out this invasion, it is argued, was to gain control of the rich deposits of natural resources such as Saltpeter and Copper. Saltpeter was a much needed ingredient to use as a fertilizer to renew the already tired agricultural fields of Europe. Copper, later on, became a widely used metal in industry. To complicate matters even more, on June 3, 1929, Chile and Peru (Peru was bound by a mutual defense treaty with Bolivia and it also lost territory to Chile in the same war) signed the Treaty of 1929. This treaty attempted to resolve the territorial dispute between the two countries, which until then hadn't been finalized. In this treaty, article first of the complementary protocol states that any negotiation or concession of territory will have to be accepted by the two signatory countries. Thus, in any negotiation, between Bolivia and Chile about territory, Peru has to be involved and agree or disagree to the outcome. This effectively creates a diplomatic triangle which is hard to measure.

Diplomatic Line
There have been many attempts, by Bolivia, to negotiate not only its access to sea but to regain control of its lost territory (or at least part of it). Of these attempts the February 8, 1975 "Abrazo de Charana" (Embrace of Charana) between the then Bolivian dictator General Hugo Banzer Suares and his Chilean counterpart General Augusto Pinochet is the most famous.

Today, the diplomatic line is one of renewed strength through economic power. President Mesa, energized by the results of the July 18th referendum, used the very notion of exporting gas through a Chilean port to try to force Chile to the negotiating table. One major reason why Bolivia has failed to make any progress towards opening a door to the sea is because the country has had very little leverage when it came to negotiate. Now, that the rich natural gas reserves have been discovered and there is much interest over who will have a chance to benefit through the export of such resources, suddenly Bolivia finds itself with some cards to play. And it has already. The prospects of exporting the gas reserves through a Chilean port were very enticing for the Chilean government. However, there was still the issue of the sea access that needed to be resolved.

President Mesa and his team approached the problem from two fronts. One being the political front, with which they pressured Chile by appealing to the international community (OAS and UN) to intercede in favor of the Bolivian claim. Most recently, Chavez of Venezuela, Castro of Cuba, Lula da Silva of Brazil and Annan of the UN have uttered supporting words encouraging the resolution of this problem. The other front was the economic front. Since the export of natural gas to Chile, and through Chilean ports to other countries, was to be so profitable, Mr. Mesa threatened to completely ignore Chilean interests and export the gas through Peruvian ports (this were more expensive plans). He also placed conditions for the sale of gas reserves to Argentina to tighten the pressure a little more. Argentina was not to resale a drop of Bolivian gas to Chile.

But the Chilean government has not let up. Ricardo Lagos, president of Chile, has hardened his stance and has continuously said he would not give way to Bolivia's demands. His government, in a counter move, just privatized the Port of Arica. It is through this port that a large amount of Bolivian exports enter the international market. This move would essencially raise costs to Bolivian exporters, thus affecting the Bolivian economy. Bolivia, in response, is threatening to take Chile to court. The Bolivian government wants to present a complaint at the WTO. With this complaint, Bolivia will argue that Chile, by privatizing its Arica port, has created a monopoly. Since monopolies are with-in the WTO's competence and are actually illegal, the hope is that Chile's move will be declared illegal.

The Results, So Far...
On August 4, 2004, in Lima, Mr. Mesa has signed a document of understanding with president Toledo of Peru which prepares the ground for a closer commercial and energy integration between Bolivia and Peru. In this meeting it was also decided that Bolivian gas will be exported through the port of Ilo.

On the same day this document was signed by Bolivia and Peru, the Chilean army conducted military exercises in Iquique, 200 Km from the Chile-Peru border. This action sparked a diplomatic row between Peru and Chile, which was recently diffused by both governments.

Furthermore, on August 6, 2004, the government of Chile privatized its Arica port. This port is where 80% and 61% of Bolivian exports and imports, respectively, are handled. The privatization of Arica would raise costs on Bolivian goods and thus make them less competitive in the world.

So it looks like Chile, Bolivia and also Peru are stuck in a situation which does not seem to have good prospects. Bolivia as much as Chile has a lot to loose from frozen relations. However, the issue at hand is not easy to resolve. The Bolivian people are set on recovering their territory and their access to the Pacific. This makes it difficult for any government in power to try alternative solutions. It is a volatile issue. However, talks are said to be on the way. Here the two governments should decide whether to continue with the dispute or become practical and agree in favor of their mutual benefit.

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