Low miles, clean: Iquique, on Chile's border with Peru, has turned into a entry point for used cars and clothing

Latin Trade, August, 2004 by Felix Nunez Duhalde

Day and night, Chilean cops stop people hired to drive used cars over the border into Peru and Bolivia. Caravans of to vehicles or more cruise the frontier, looking for unguarded spots to cross without, paying taxes. In the chilly night air of the driest desert in the world, illegal trafficking of cars, driven by men who earn US$40 per trip, a relative fortune here, and of used clothing, carried by women turned pack animals called burreras, has become a big business.

Chile has 860 kilometers of border with Bolivia and 160 kilometers with Peru, most of it an inhospitable, high-altitude desert once better known as a highway for drugs and illegal immigrants. Now it has become the main entryway for cars and used clothing to the Southern Cone. Those who are caught are quickly freed, since smuggling is punished in Chile mainly by fines issued by a customs court.

The cars come from Japan, the United States and Korea. Clothing comes from the United States and Europe. Both enter South America legally through Zofri, a duty-free zone in Iquique, Chile, near the Peruvian border. There are many duty-free areas in Latin America, but, Iquique has specialized in second-hand cars and clothes. "Other duty-free zones handle other types of merchandise," says Favio Borzacchini, a Venezuelan and general manager of Negocios de Zofri. "Here we have a good connection and business developing with Asia, we handle bigger volumes, have better prices and we are more competitive."

The duty-free goods that land at Zofri are not destined just for the Chilean market but also for Bolivia, Brazil, Peru and Paraguay. In 2003. Zofri sold $95.5 million in cars and moved used clothing valued at $8.8 million, 5.3% of its total merchandise. There are no figures on how many cars later cross borders illegally, but Chilean police believe that it is more than 5% of cars sold in neighboring countries.

Despite the lack of official statistics, it's clear how much the trade means to the economy of northern Chile, where copper mining and fishing are the dominant industries. According to Zofri, 44% of the used cars that arrive in Iquique end up in Paraguay; 28% go to the duty-free zone of Punta Arenas in the extreme southern tip of Chile; 9% go to Brazil, and 5% to Bolivia. The remainder--14%--goes to Peru or stays in northern Chile.

The cars come in by ship. From Asia it takes between 20 and 25 days to reach Iquique, and from the United States it takes 12 days. "One ship can bring in 1,200 cars. The U.S. ships bring 120 cars each trip, once a month. The Japanese ships bring between 400 and 500 cars tour times a month," says Ruben Veliz, president of the Vehicle Importers Association of Iquique. "Today buyers are focused on the Japanese cars because they are more fuel efficient."

Naturally, used vehicles are much more affordable than new ones. "A pickup truck in Chile costs $150,000. But if you bring one from Japan it costs between $15,000 and $28,000," says Jaime Candia, owner of Importadora Yeims.

To enter the Zofri zone, each vehicle must pay 1.7% of its value as a tax. Comparatively, one of these cars is a great deal. Ricardo Sanabria, a Paraguayan customs agent in Iquique, says that Paraguay requires payment of a tax of 40% of the vehicle's value. The only restriction on used cars is that they cannot be more than 10 years old.

Taxman. Miguel Cordova, Peruvian consul in the nearby Chilean port of Arica, says that his country allows used vehicles to come ashore at Tacna, Peru, if the cars are less than five years old. Peru charges a 33% tax on second hand cars, while Bolivia charges 34%, rates which can vary by model. Officially, Brazil does not allow any used vehicles into the country.

Second-hand clothing is a good business, too, in Iquique as well as Arica. Yes International, a clothing seller in Arica, buys from 36 cities in the United States and Canada. The company annually brings in 4,000 tons of clothing worth $2.5 million. "The merchandise leaves in containers and arrives about a month later at the port of Arica," which operates under an extension of the duty-free zone, says Wilfred Flores, owner of Yes. "It's a good business, but very complex."

Flores says 90% of the buyers of used clothing are Peruvian. "Clothing made in Peru is of poor quality," he says. "Used clothing is better and cheaper than what they can manufacture."

FELIX NUNEZ DUHALDE * IQUIQUE