Andean Community of Nations -ACN
The Andean Community, then called the Andean Pact, was created on 26th May 1969 in Cartagena de las Indias, Colombia, through the Cartagena Agreement. It is based in Lima, Peru.
Its objectives are:
♦ To promote balanced and harmonious development of the member countries in conditions of equality, through economic and social cooperation and integration;
♦ To facilitate participation in the regional integration process in order to gradually form a Latin American common market;
♦ To strengthen sub-regional solidarity;
♦ To narrow the existing differences in development and accelerate the growth of Andean countries;
♦ To further reduce external vulnerability;
♦ To improve the position of member countries in the international economic context.
Member countries: Bolivia, Colombia, Ecuador, Peru and Venezuela.
Observer countries: Panama, ACN and Mercosur member countries.
Bloc size in data:
Population: 118.9 million
GDP: US$ 242.5 billion
Exports: US$ 57.3 billion
Imports: US$ 46.1 billion
Background and Organisational Structure
When constituting the Andean Group between Bolivia, Colombia, Chile, Ecuador and Peru, the Cartagena Agreement established different hubs of economic articulation, corresponding to the objectives to set up an area of free trade and customs union: the "Liberation Programme" to gradually remove all obstacles against exchange between the member countries by means of tax relief time scales for different kinds of product; and also to gradually adopt a common external tariff by applying a common “minimum” tariff. No less important were the provisions adopted for the sector programme of industrial development; and the harmonisation of economic policies together with the confluence of different kinds of common policies.
With regard to membership, Venezuela’s joining the Agreement occasioned the signing of an Additional Instrument in Lima on 13th’ February 1973. And Chile’s withdrawal was established in the Additional Protocol to the Agreement also signed in Lima on 5th October 1976.
A considerable part of the institutional negotiations surviving the constitution of the scheme was marked by industrial programmes. The first Sector Programme for Industrial Development approved by the Commission was the Metal-Mechanical Programme (Decision 57 of 1972). It was followed by the Petrochemical Programme (Decision 91 of 1975) and Automotive Programme (Decision 120 of 1977).
Harmonisation of macroeconomic policies prevailed by approval of a common system on addressing foreign capital and trademarks, patents, licences and royalties. This system, at first restrictive, was approved by Decision 24 of the Agreement Committee, announced on 31st December 1970. The following were approved shortly afterwards: a Convention for Preventing Double Taxation between member countries and the Type Convention for Signing Agreements on Double Taxation (Decision 40 of 1970); and later the Common System governing the Treatment of Andean Multinational Companies (AMCs) (Decision 46 dated 18th December 1971).
During the 1980s a serious economic crisis was evident affecting the development of the Andean integration process in different aspects: failure to comply with the commitments assumed in the liberation programme, failure to apply the programmes of industrial development, unilateral alteration of community policies such as referring to foreign investment, and failure to comply with the common external tariff.
Given such major problems, a Modifying Protocol to the Cartagena Agreement was drafted, approved in Quito on 12th May 1987 and enforced on 25th May 1988. This Protocol extended the terms of the liberation programme and set up new mechanisms of exception for this programme: a temporary system of trade administration and a new guarantee clause. With regard to the common external tariff, its adoption was postponed indefinitely. The industrial programme was changed, creating three modalities: industrial integration programmes, complementation agreements and industrial integration projects. From the institutional viewpoint, the innovations of the Quito Protocol were also far-reaching, because the Court of Justice and Andean Parliament were included as the main bodies in the Cartagena Agreement.
Since February 1989 the Presidents, through the Andean Presidential Council, played a leading institutional role and adopted a series of documents and decisions worth mentioning: the Cartagena Manifesto in May 1989; the Strategic Design for guidance of the Andean Group approved in December that same year; the formalisation of the Andean Presidential Council at the meeting in Machu Picchu in May 1990; bringing forward deadlines to form the free trade area in accordance with the result in La Paz on 29th November 1990 and, lastly, the term of office of the Ministers of Foreign Affairs to institutionally review the integration mechanisms that were issued at the Caracas Meeting in May 1991. In November 2001, another Treaty was signed in which the Parties agreed not to create or charge new “customs duties" or "any kind of restraint" against reciprocal trade.
References to the Andean Community regulations were made because of such questions as: removal of duties and any other restriction, determining the origin, safeguarding measures, double taxation and prevention of tax evasion. In the Third Part of the Treaty, on Economic and Social Cooperation, the Parties decided to establish Bi-national Border Attention Centres (CEBAF), in the framework of Decision 502 of the Andean Community. In chapter V of the Social Agenda it was agreed to have common social programmes of social convergence and horizontal technical cooperation with the participation of civil society, in order to advance the performance of the Integral Social Development Programme (PIDS), (Decision 553 and the other Decisions adopted within the framework of ACN, and on other forums of a regional and sub-regional nature).
The original institutional structure was to a large extent inspired by the Treaty of Rome that instituted the European Economic Community, since it revolved around two organs: the Commission (similar to the EEC Council) and the Agreement Board (similar to the EEC Commission). Later the Court of Justice (1979), Andean Parliament (1979), and the Andean Presidential Council (1990) were created. This institutional structure was reorganised and altered by the Modifying Protocol of the Agreement in Trujillo (9th and 10th March 1996), which created the Andean Community and Andean Integration System. Some of the main changes were as follows: transformation of the Agreement Board into a General Secretariat of the Andean Community, and inclusion of the Andean Presidential Council and Andean Council of Foreign Ministers in the institutional structure of the scheme.
The Andean Integration System (AIS) has the following bodies: Andean Presidential Council (1979), Council of Foreign Ministers, Andean Community Commission, General Secretariat, Andean Parliament (1979), Court of Justice (1979), Business Advisory Council (CCEA (1996), Labour Advisory Council (CCLA) (1996), Andean Financing Corporation (CAF), Latin American Reserve Fund (FLAR), Inter-government Conventions and Simon Bolivar University.
The Andean Presidential Council, which meets once a year on average at the Presidential Summit, is made up of the heads of government and is the maximum decision-making body of the ANC.
The Andean Council of Foreign Ministers is the policymaking body, in charge of ensuring achievement of the objectives of the sub-regional integration process, and to formulate and perform foreign policy, signed the agreements and conventions and coordinated the joint position of the bloc in international negotiation forums.
The Andean Community Commission is the regulatory body par excellence of the AIS.
The General Secretariat is the executive body whose role is to administrate the regional integration process and make sure that the community commitments are fulfilled.
The Andean Parliament is the decision-making body of the AIS and the CCEA and CCLA are advisory bodies, coordinated by the General Secretariat, where the business and union organisations participate.
At the Ninth Meeting of the Andean Presidential Council in Sucre on 22nd and 23rd April 1997, the heads of state instructed the Council of Foreign Ministers to sign a Protocol that would permit the Cartagena Agreement to adapt to new programme objectives, especially in terms of foreign relations, trade in services and social matters. This Protocol was approved on 25th June 1997. In turn the Trujillo Protocol should be complemented with an adaptation of the structure approved by the Court of Justice, which was pursued by signing the so-called Cochabamba Protocol. During the 1990s at the same time as when the legal and institutional structure of the scheme was being reviewed, major changes were made in its economic constitution. With regard to the operation of the free trade area, different actions agreed by the governments tended to accelerate the Liberation Programme: La Paz Minutes signed by the Presidents in November 1990 and Commission Decisions 301 (July 1991) and 324 (August 1992). Therefore, until February 1993 the free trade area was operating for Bolivia, Colombia, Ecuador and Venezuela. But Peru asked to temporarily suspend its obligations, both with regard to a liberation programme and common external tariff.
This suspension was established by the Decision of Commission 321, on 25th August 1992. In April 1994, Decision 353 of the Commission planned to reincorporate this country into the free trade area in three stages, which was not fully achieved when the terms were deferred by Decision 387 on 13th December 1995. Finally, Decision 414, dated 30th July 1996, approved a time scale for customs relief tending to fully reincorporate Peru into the Andean free trade area, which in principle would culminate in 2005. The same Decision exempted Peru from the obligation to apply the common external tariff until the Commission pronounces on the matter.
At the end of the 1990s, ACN recorded major growth of its intra-regional trade of 27% a year (It is worth pointing out that petroleum is the main item responsible for the increase in the volume of intra-bloc trade – between 1999 and 2000 this grew 69%. Trade of the other products had a 20% growth.) And major advances in negotiations on the agenda for setting up a common market (which should be in effect on 31/12/2005).
Treatment of social and labour topics
On 4th December 2000, the ACN General Secretariat prepared a draft of an Andean Charteron Human Rights, defined as “an articulating hub of the political scope for integration” and a plan of action to coordinate efforts in the areas of education, culture, health, science and technology, environmental development and specific programmes in socio-labour terms to further active participation of civil society in the integration process.
In June 2001, the Andean Presidential Council approved the Protocol that modified the Simon Rodriguez Socio-Labour Agreement, meeting a demand of the central trade unions of the Andean Labour Advisory Council so that ACN had a tripartite space to address labour and social topics and to integrate the Andean Integration System.
The Advisory Council of Labour Ministers of ACN takes actions in the five socio-labour thematic hubs of the Andean Common Market: furthering employment, training and work capacity building, occupational safety and health, social security and labour migration. Moreover, in coordinating with the Andean Business and Labour Advisory Councils, this Advisory Council promotes projects for the forthcoming constitution of the Andean Labour Observatory, the main instrument of the Simon Rodriguez Agreement for analysis and definition of the Andean Community socio-labour policies.
In the workshop held in Caracas on 9th and 10th July 2003, the Advisory Council of Labour Ministers of the Andean Community acknowledged the gravity of the employment situation and the efforts of the Labour Ministries to confront unemployment, and the increasing informality and poverty that it creates. It was reiterated that it was “necessary to strengthen the Labour Ministries, particularly with regard to their contribution to the design and execution of the development strategies and social policy and employment in general, with social participation, as well as the importance to reinforce the inter institutional coordination and formulation of State policies.” State action must concentrate on improving its quality, efficiency and capacity to meet the growing demands and social rights of the citizens.
The Advisory Council of Labour Ministers approved a series of recommendations (general and specific) for the member States on furthering employment.
Considering the guidelines for formulating the Andean Integrated Social Development Plan (Decision 553), the ministries found that, in the countries in the sub-region, programmes and projects for furthering employment are being developed, focusing on populations with job insertion difficulties, namely indigenous populations, the disabled, low-income female breadwinners, the young unemployed, unemployed populations in poor communities, and so on. This is the basis for recommending the creation of a high level of inter-institutional coordination in the member countries, especially with public financial organisations with regard to developing programmes and projects to increase employment and professional training.
Other (general) points of the Recommendation are to strengthen and boost national employment policies and intensify horizontal technical cooperation; to combine fighting against poverty with increased employment, as well as fighting against discrimination and promoting equal opportunities; to carry out socioeconomic development policies and programmes that “have a strong impact on local development and guarantee social participation in production and a better quality of life” and the need to strengthen the role of the Labour Ministries of the member countries, “so that they are the agencies regulating employment policies and in turn directing such policies towards an inter-sectoral outlook and, therefore, towards inter-ministerial coordination”. It was also defined that the formulation of the Andean regulation for increased employment would have the active participation of the Andean Business Advisory and Labour Councils, and that the labour and business sector would participate in the design, execution and assessment of the national policies for reviving production and increasing employment. At the request of COMUANDE, the Council “suggested submitting the national reports on boosting employment to the Labour and Business Advisory Councils.” Another major decision was to prepare a financial feasibility study for the development of the Andean Labour Observatory.
In May 2004, the Andean Council of Foreign Ministers of ACN approved a series of instruments in order to update ACN regulations for the future common market:
Andean Social Security Instrument
(Decision 583) to adapt community regulations to the objective of the Common Market and current structure of the social security systems in the Andean countries;
Andean Labour Migration Instrument
(Decision 545, June 2003), that seeks to adapt community regulations to the objective of the Common Market and right of Andean workers to move and freely settle in a community space;
Andean Instrument for Occupational Safety and Health
(Decision 584), which intends to promote and regulate actions to be taken in work places to reduce workers’ health hazards and prevent risks arising from the occupation. Today the instruments are being regulated by the Advisory Council of Labour Ministers and support from international agencies such as ILO and IOM.
In relation to the Andean Labour Observatory, a Pilot Plan is underway to set up a database that collects and systematises statistical, regulatory and documentary information, especially on the five social-labour thematic hubs of the Andean Common Market (increased employment, labour training and capacity building, occupational safety and health, social security and labour migration) and that acts as a benchmark for guiding community actions on this matter.
ACN, like Mercosur, came to the end of the 1990s involved in multiple and simultaneous foreign trade negotiations, with emphasis on the free trade agreement with Mercosur, and the creation of a trade association with the EU and FTAA.
Since the 1980s, ACN has cooperation agreements and tariff preferences with the European Union. In 2001, the European Union renewed its preferential access system to its market which permitted ACN access to the European market until 2004. In 2005 the Andean Community and European Union officially launched the process of joint assessment of Andean integration within the framework of the meeting of the Andean-European Mixed Commission in Brussels. Similarly with Mercosur, the EU stated as a condition the negotiation between blocs and for ACN to complete its implementation. In 2005/06 negotiations came to a standstill due to the internal situation of ACN as well as to EU problems to include another ten countries, and for political priority that now has negotiations with the WTO.
In December 2003 the governments in Mercosur and Colombia, Ecuador and Venezuela signed an Economic Complementation Agreement no. 59 within the framework of ALADI, (ACN 59), establishing a free trade area in force from 1st July 2004. In December 2004 ACN participated in the creation of the South American Community of Nations, within the framework of the Third South American Presidential Summit in Cuzco. And in 2004/05, both Chile and the Mercosur countries acquired the status of Andean Community Observers.
In 2005 ACN strengthened its relations with the other South American countries, especially by creating the South American Community of Nations (SCN) and in the infrastructure projects planned in the IIRSA South American programme. At the same time, that same year Colombia, Ecuador and Peru began negotiations on free trade treaties with the USA.
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At a ministerial meeting in Miami only Venezuela was against the terms of the US proposal for negotiating FTAA and supporting Mercosur positions. The same situation occurred again in October 2005 in Mar del Plata when Mercosur and Venezuela did not agree to continue the negotiations.
In 2006 Colombia and Peru each signed a separate free trade treaty with the USA.
Negotiations were interrupted with Ecuador, first because the Ecuadorian government had a strong internal opposition and later because President Palacios cancelled a contract with the US oil company Occidental Petroleum Corporation (Oxy) on 16th May. It was immediately announced, consequently, that Washington suspended negotiations for establishing a free trade treaty.
Current status: interruption and standstill
At the start of the new century, Andean integration seemed to be moving towards a new stage based on the decision of the presidents to complete the process. During the Tenth Ibero- American Summit of Heads of State and Government, on 23rd November 2001, the Presidents of Bolivia, Colombia, Ecuador, Peru and Venezuela in Lima, Peru, met and agreed to “relaunch” the integration process, calling a summit meeting for late January 2002.
Adopting the guidelines of the Andean Presidential Council that, at its meeting in Santa Cruz de la Sierra in January 2002, approved the guidelines for adopting a new Common External Tariff (AEC), the Andean Community Commission announced Decision 535 on 14th October 2002. When establishing the new system, criteria were fixed to authorise member countries to defer certain taxes and, given possible distortions in sub-regional trade, a procedure was fixed to authorise corrective measures. The system should have come into force on 1st January 2004. But in May 2004 the ACN Commission adopted Decision 580, postponed the communication until 10th May 2005, agreeing in this interim to intensify the free trade area and move forward to the Andean common market and adopt two common macroeconomic programmes – that of Common Agricultural Policy, and Government Procurement System.
Another important decision was to advance in the liberation process of commercial services by harmonising the relevant national regulations.
Certainly, in 2005 ACN faced major setbacks to move ahead with the process, and failed to put the ACN into effect. In 2006, after almost forty years of existence, ACN is on the edge of extinction. This is due to a series of non-compliances with decisions and postponement of the start of the customs union, which now, with the signing of the FTAs with the US by two of its members – Peru and Colombia – has become unfeasible. But more than the trade issues, the break is the result of the deep-rooted divergence between the governments on the political and trade relations with the USA. Both the main ally and archenemy of the Bush government in South America coexist in the ACN – President Alvaro Uribe of Colombia and President Hugo Chavez of Venezuela, respectively.
These differences have been growing since 2004, when FTAA negotiations came to a standstill in Miami and culminated at the Mar del Plata Summit in October 2005 when, together with Mercosur, it commanded the interruption of FTAA negotiations. And the break off was confirmed when Colombia and Peru signed the FTAs with the USA.
The withdrawal of Venezuela from the bloc is officialised at the extraordinary summit of ACN, called by President Morales and held in Quito in June 2006, only formalising the consequences of bilateral agreements with the USA. A first consequence is that both Colombia and Peru will have to make changes in several points of their national trade and industrial legislations to comply with the agreement with the USA. This means that various ACN decisions will be ineffective.
Another consequence of the FTAs is the unfeasibility of implementing a common external tariff and, therefore, consolidating a customs union. And lastly, the problems of the three-pronged trade – USA forbade extending benefits to the other members, but the inverse is not true.
That means even if against a free trade treaty with the USA, Venezuela, Bolivia and Ecuador will be exposed to the jurisdiction of US trade through their association with Peru and Colombia.
It should also be mentioned that Venezuela’s decision to become a full member of Mercosur is added to this set of events that led to this country’s withdrawal from ACN and the latter’s standstill, despite the efforts of the President of Bolivia who called an Emergency Summit in Quito on 12th June 20065.
Although the Andean Community is the oldest bloc in the region, Venezuela’s withdrawal drastically weakened the ACN in the negotiations with Mercosur and the European Union. It means the loss of a State with strong relative economic power, top ranking oil producer in the continent and the fifth world oil producer. The Andean customs union before Venezuela’s withdrawal concentrated more than 90% of its oil reserves in that country and more than 70% exports of the region.
The Andean Presidential summit left a balance of agreements based more on the political will to hide dissent than on an actual political and economically strong cohesion in the bloc, such as addressing the “re-launch” proposed by Evo Morales in Quito.
Not an easy task since it implies reaching an understanding with the other countries on the concept of external relationship, especially with the USA. The possible rapprochement would be with President Palacios of Ecuador, which however does not have sufficient political stability to guarantee any agreement.
At the same time the analysts ask themselves if Evo Morales himself, who is increasingly reinforcing an anti-imperialist discourse, will be in conditions to stay in the bloc or accept the differences. Or if he will take the same route as Chavez, by choosing Mercosur as the hard core of integration towards the new South American Community.
On the other hand, it is not clear what path President-elect Alan Garcia will follow, who has already shown a desire to improve the alliance with Brazil, planning an exit to the Pacific, as well as proposing to be a gas producing alternative for that country.
What is concrete is that the ACN “breakdown” hinders the creation of the SACN and weakens the plans of Mercosur, mainly Brazil, to construct and consolidate a political, economic and commercial bloc on the South American continent, not only by getting rid of the member for the project but mainly by eventually strengthening US strategy for the region.
Basic Time Line
1969 - May 26 – Signing the Cartagena Agreement.
1973 - Venezuela joins the Cartagena Agreement.
1976 - Chile leaves the Cartagena Agreement.
1979 - Creation of the Court of Justice, Andean Parliament and the Andean Council of Foreign Ministers.
1983 - The Treaty for Creating the Court of Justice now in force.
1987 - Signing of the Quito Protocol.
1990 - Creation of the Andean Presidential Council.
1992 – 27th August– Temporary suspension by Peru of its obligations regarding the Liberalisation Programme.
1993 – 31st January– The Free Trade Area for Bolivia, Colombia, Ecuador and Venezuela starts to fully operate.
1994 - Approval of the Common External Tariff under Decision 370.
1996 - Presidents approve the Trujillo Protocol.
1997 – 25th June– Sucre Protocol is approved.
- 1st August– The General Secretariat of the Andean Community starts to operate.
1998 – 11th June– The General Framework of Principles and Standards for Liberation of the Trade of Services in the Andean Community is approved.
- 26th August– Signing of the Peace Agreement between Peru and Ecuador and the Free Trade Acceleration and Deepening Agreement between Peru and Ecuador.
1999 – 23rd–27th May – The Eleventh Andean Presidential Summit sets the priorities to intensify integration for the next five years and the heads of State agree to establish the Common Market no later than 2005.
- 30th June – Signing the Understanding of Trade and Investment Cooperation between the Andean Community and the Canadian government in Ottawa.
- 16th September – The governments of Colombia, Ecuador and Venezuela sign a new
Industrial Complementation Agreement in the Automotive Sector and arrange for it to be in force from 1st January 2000.
2000 - The countries in the Andean Community and Central American North Triangle
(Guatemala, El Salvador and Honduras) hold their first negotiation meeting for an Agreement on Customs Preferences.
- The Third Andean Business Forum in Lima, with the participation of around a thousand representatives from the private sector.
2001 - The European Union Council approved the new Regulations (Law) on adopting a plan of general customs preferences for the period between 1st January 2002 and 31st December 2004, including the preferences for the Andean sub-region, known as Andean SAP.
2002 - In the framework of the II South American Summit of Heads of State (26th July) the presidents of ACN adopt the Andean Charter for Promoting and Protecting Human
Rights sign a Declaration by which they give instructions to consolidate the links of political, economic, trade and cooperation association with the American hemisphere, European Union, Asia-Pacific and other centres of common external scope.
- 14th October – The Ministers of Foreign Affairs, Economy and Finance, Foreign Trade and Agriculture agree to a new Common External Tariff for the 62% of the customs universe and fix guidelines for negotiating the remaining 38%. The AEC is adopted through Decision 535.
- 6th December– The Andean Community and Mercosur sign an Economic Complementation Agreement for constituting a Free Trade Area, whose negotiation should be concluded before 31st December 2003.
2003 – 1st March - The interconnection between Ecuador and Colombia started operating, with which the first step is taken in the power integration process of the five Andean countries.
- 14th April – The Sucre Protocol now in force, which introduces substantial changes in the current text of the Cartagena Agreement and establishes new mechanisms that permit further integration in the new community working areas.
- 4th August – The Chancellors of the Andean Community and Mercosur renew the political decision of their governments to progress in negotiations for a free trade agreement between both blocs, at a meeting in Montevideo, in which ACN presented a work proposal containing guidelines for such negotiations.
- 15th October – The Andean Community and European Union conclude in Quito the negotiations for the Agreement of Political Dialogue and Cooperation between both regions, which will act as a base for the next negotiation of an Association Agreement including a free trade agreement.
- 16th December- The governments of Argentina, Brazil, Paraguay and Uruguay, Mercosur Member States, and Colombia, Ecuador and Venezuela, member countries of the Andean Community, signed within the framework of ALADI an Economic Complementation Agreement no. 59 (ACE 59), under which they establish a free trade area prevailing from 1st July 2004.
2004 – 26th April- The ministers of Labour and Public Works of the Andean Community approve in Manta-Ecuador, the Common International Road Transport Policy in the
Andean Community and submit it to a public referendum.
- 4th May- Pursuant to Decision 580, the ACN Commission postpones to 10th May 2005 the coming into effect of the new Common External Tariff (AEC), established in Decision 535 of 14th October 2002, agreeing in this period to intensify the free trade area and progress towards the Andean common market.
- 11th May- The ACN Commission adopts, under Decision 578, a new common system to prevent double taxation and prevent tax evasion in the Andrea countries.
- 21st August- Approval of the Integrated Social Development Plan (Decision 601) that will permit the Andean Community countries to boost social development and fight as a community against poverty, social exclusion and inequality in the sub-region.
- 6th December- Approval by the Andean Council of Foreign Ministers of Chile’s request to participate as an Observer in the Andean Community.
- 8th December– Political creation of the South American Community of Nations (SACN), in the framework of the III South American Presidential Summit, in Cuzco.
2005 – 14th January – The Andean Community and European Union officially launch the process of joint assessment of the Andean integration in the framework of the meeting of the Andean-European Mixed Commission in Brussels.