Present status

The Cartagena Agreement aims to consolidate the Andean economic space and improve the interrelationship of the Andean Community in the international sphere, within a context of competition governed by market reasoning, where there is a reasonable degree of protection from imports originating in third countries in an environment of open regionalism.

As the highest-level body of the Andean Integration System, the Andean Presidential Council hands down its decisions in the form of Guidelines. The Council meets at least once a year and has two advisory bodies, one in the economic sphere, of which the Ministers of Treasury or Finance, the Presidents of the Central Banks, and the economic planning officers of the Member Countries are members; and the other dealing with social issues and comprised by the Ministers of Labor.

The Andean Council of Foreign Ministers is the policy-making body, which expresses its opinions through Declarations and Decisions that are approved by consensus. The Andean Community Commission, made up of plenipotentiary representatives of the Member Country governments, formulates integration policy on trade and investment and issues Decisions that are approved by majority vote, unlike those of the Andean Council of Foreign Ministers.

The Andean Community has a long history of institutional development. Headed by the General Secretariat as its executive body, it is composed of the Andean Development Corporation (CAF), the Andean Parliament, the Andean Court of Justice, the Andean Reserve Fund that later became the Latin American Reserve Fund (FLAR), the Business and Labor Advisory Councils, the Simón Bolívar Andean University, and the two social conventions, the Hipólito Unánue Health Convention, to which Chile is also a party, and the Simón Rodríguez Labor Convention.

Thanks to these bodies, the Andean Community today has a strong regulatory framework, enjoys a growing degree of supranationality, and has an elaborate dispute settlement system in place with the Andean Court of Justice at its apex. The Member Countries themselves, their trading partners, and foreign investors can place their trust in and rely legally on the playing rules of Andean integration.

Andean Community law springs from both primary law and derivative law. The Cartagena Agreement and the Treaty Establishing the Court of Justice of the Andean Community are the primary law, while the derivative law consists of the 498 Decisions approved by both the Andean Council of Foreign Ministers and the Commission, the 1,015 General Secretariat Resolutions, and the more than 370 verdicts of the Andean Court of Justice.

With the entry into force of the Court Treaty in 1983, derivative law became compulsory and directly enforceable in the Member Countries as of its publication in the Agreement’s Official Gazette or on the date that is specified in it.

No other integration process in the Americas has this capability, for the agreements they adopt must be incorporated into national law and in some cases, such as that of the MERCOSUR, they must be communicated and deposited with its administrative body, which must then inform the Member Countries so that they can enter into effect.

In order to accomplish its aims, the Cartagena Agreement provides for a series of mechanisms and measures to be implemented progressively and irreversibly, in keeping with the timeframes and conditions that the policy-setting and decision-making bodies of the Andean Integration System establish.

Tariff reduction and the prohibition against the application of para-tariff measures to trade within the subregion have boosted trade between Member Countries significantly beyond their worldwide exports, particularly since 1990 when Andean economic opening started.

The annual growth of intra-subregional transactions averaged 20 percent at the beginning of the 1990s and later dropped sharply by roughly 4 percent between 1998 and 1999 when Andean economic performance suffered the damaging effects of the international financial crisis and the havoc wreaked by El Niño.

The year 2000 saw a recovery of the Gross Domestic Product in the neighborhood of 3 percent, a growth that is expected to be repeated in 2001. Intra-Community exports followed the worldwide economic trend. After dropping to barely 4 billion dollars in 1999 (in a 27 percent decline from their 1998 figure), these exports climbed 31 percent to reach 5.2 billion dollars in 2000. This year’s growth has been forecast at 15 percent, which would raise intra-Community exports to almost 6 billion dollars –a record figure for the Andean Community’s 32 years of existence.

It is important to point out that the growth noted in intra-subregional transactions was reflected in a sizeable increase in Andean worldwide exports. While in 1990, intra-subregional sales accounted for only 4 percent of the worldwide exports, today they amount to 14 percent. A breakdown of Andean exports by geographic destination reveals a slight increase in the MERCOSUR’s participation, while reductions were reported in exports to the United States, the European Union, and Asia (from 47 percent, 19 percent, and 6 percent in 1990 to 40 percent, 16 percent, and 5 percent in 2000, respectively).

Exports of manufactured goods as a percentage of intra-subregional transactions grew heavily over the period. While at the beginning of the process in 1970 they represented no more than 50 percent of intra-subregional trade, today they account for slightly over 90 percent of the sales within the Andean Community, as well as 50 percent of the subregion’s worldwide sales.

Trade today between Bolivia, Colombia, Ecuador, and Venezuela is free of all duties and restrictions (which has become known as "zero tariff"), making them a virtually Free Trade Area. Peru’s bilateral trading relations with its Andean partners are temporary. The greater part of the tariff universe and the country’s trade is duty-free, for Decision 414 approved in 1997 set up a program to decontrol 26 percent of the tariff universe, which was classified into several lists on which tariffs were to be reduced at different rates and speeds until Peru is fully incorporated into the Andean Free Trade Area in 2005. Today less than 660 Nandina subheadings out of a total of nearly 7,000 are still being reduced. Irrespective of this process, Peru and Ecuador will liberalize 98 percent of their bilateral trade by the end of 2001 under the Trade Acceleration and Deepening Agreement.

Prospects

The establishment of the Andean Common Market is a response to the objective stipulated in article 1 of the Cartagena Agreement of contributing to the progressive formation of a Latin American common market. This is a mandate handed down by the Andean Presidential Council at its Guayaquil meeting in 1998 and confirmed at its meeting in Cartagena in 1999 and outlined in the form of a short- and medium-term timetable at its meeting in Lima in 2000.

Moving toward the creation of the Andean Common Market will necessarily mean perfecting both the Free Trade Area and the Andean Customs Union, in which all of the Member Countries must participate fully. The freeing of trade must be expanded by the decontrol of intra-subregional trade in services and production factors, capital, and labor.

The Twelfth Andean Presidential Council, gathered in Lima, Peru on June 9 and 10, 2000 adopted a series of Guidelines for the Establishment of the Andean Common Market and the specific objectives for the next twelve months, as well as a list of the measures that are needed in the medium term for the establishment of the Andean Market by the year 2005.

These have to do with improving the trade in goods and in services, capital movements, the circulation of people, macroeconomic policy harmonization, border integration and development, and other steps complementary to the integration process that will allow the necessary conditions to be created to make the Andean Community a space for peace, safety, and stability.

In the very short term, conditions must be established to improve upon the enlarged market in a sound and transparent way. This will mean taking steps to simplify trading procedures, carry out cooperation programs, and approve Community standards to prevent and/or correct distortions in competition. The adoption of a Common Agricultural Policy and the comprehensive improvement of the Common External Tariff are other goals.

In the area of service liberalization, which should be completed by December 31, 2005 at the latest, regulatory standards must be adopted to guarantee the unimpeded circulation of transport vehicles of all kinds and Community standards must be approved on electronic commerce, the global information society, the deregulation of financial services, and the recognition of professional degrees.

With regard to the free circulation of people, steps will be taken to move ahead with the recognition of national identification documents and with studies on migratory requirements in the subregion so that the necessary conditions can be created to allow people to establish their residence in any Member Country, starting with the workers. This will involve updating provisions connected with the Andean Labor Migration and Social Security Instruments.

At the same time, actions are being taken to harmonize macroeconomic policies. In that way, Community goals can be defined that will give the Subregion the necessary stability, safety, and transparency to make our countries attractive to investors.

The Community Policy on Border Integration and Development is also being furthered in an effort to raise the standard of living of the people in those areas, which are generally impoverished. We plan to establish Border Integration Zones where vital problems can be resolved through concerted and bilateral efforts. Binational Border Service Centers (CEBAFs) will also be set up to expedite cross-border processing of goods and persons and thereby reduce transportation times and costs.

The opening to the unhampered movement of factors of production with the establishment of the Common Market has led us to address cooperation issues that are complementary to the trade integration process. That cooperation is connected with the police and legal areas, with the control of illegal narcotic drugs, with the smuggling of weapons, with organized crime, and with money laundering, among others –areas in which joint actions must be taken to build up the necessary trust so that we can move ahead with the projected Common Market.

Two other major items on the Andean agenda for the future are the Social Agenda and the development of the Common Foreign Policy. The former has been a matter of continuing concern to the Andean Presidential Council, which will meet shortly to explore and define detailed social actions to be taken by the Community, particularly in the border areas. The aims of that Agenda will be the defense and promotion of the common values, rights, and interests of Andean citizens and the strengthening of the cultural identity, solidarity, and cohesion of the Andean Community; the economic development of the Member Countries with social equity; the eradication of extreme poverty and the progressive improvement in the standard of living of the Andean people; the promotion of the citizens’ participation; the advancement of the Subregion’s sustainable development; and international environmental conservation.

The Common Foreign Policy, whose aim is to strengthen the identity and cohesion of the Andean Community and give it a more prominent international presence and influence, centers its efforts on the political, economic, and socio-cultural spheres. Among the most important accomplishments in this area are the Andean participation with a single position and spokesmanship in the creation of the Free Trade Area of the Americas (FTAA), the coordination of efforts in the World Trade Organization, the negotiations with the European Union to enter into an Association Agreement, and the signing of agreements on political dialogue and cooperation with China and the Russian Federation. Furthermore, the Andean Community and the MERCOSUR have ratified an agreement to conclude negotiations for the establishment of a Free Trade Area in January 2002, as steps are being taken to implement a mechanism for Political Dialogue and Cooperation between the CAN, the MERCOSUR, and Chile, to which end the Foreign Ministers of the nine countries will meet this coming July 17 in La Paz.