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Innovation in Latin American Regionalism: The Andean Common Market

Published online by Cambridge University Press:  22 May 2009

William P. Avery  and
James D. Cochrane
William P. Avery
Affiliation:
William P. Avery and James D. Cochrane are colleagues in the Department of Political Science atTulane University, New Orleans, Louisiana.
James D. Cochrane
Affiliation:
William P. Avery and James D. Cochrane are colleagues in the Department of Political Science atTulane University, New Orleans, Louisiana.
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Extract

The Andean Common Market, the most recent attempt at regional integration in Latin America, differs from the other Latin American efforts both in the factors that prompted its formation and in the support it had when it was established. More importantly, it differs in its terms and provisions, providing for a higher level of integration than any other Latin American effort. Several of its features—a common policy on foreign investment, regional planning and coordination in such fields as industry and agriculture, a quasi–supranational secretariat — make it an innovative approach to integration in Latin America. Numerous factors enhance the integrative potential of Andean integration. Among these are relatively favorable ratings on several of the neo–functional variables of regional integration. These indicators suggest that the effort may attain its objectives and perhaps even set an example to be followed by other economic groupings among Latin American countries. Still, projections about the future of the Andean Common Market must remain mixed. Some negative factors exist within the movement that could, if they triumph over the positive factors, lead to the same stagnation that now characterizes LAFTA and the CACM.

Type
Articles
Information
International Organization , Volume 27 , Issue 2 , Spring 1973 , pp. 181 - 223
Copyright
Copyright © The IO Foundation 1973

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References

1 Labeling the 1966 Declaration of Bogotá as the first step in the creation of the Andean Common Market is admittedly arbitrary. Various preliminary actions had been taken prior to August 1966.

2 Grunwald, Joseph, Wionczek, Miguel S., and Carnoy, Martin, Latin American Economic Integration and V.S. Policy (Washington: The Brookings Institution, 1972), p. 56.Google Scholar Hereafter cited as: Grunwald, et al.

3 The Latin American Free Trade Association is described and analyzed in Dell, Sidney, A Latin American Common Market? (New York: Oxford University Press, 1966);Google ScholarWionczek, Miguel S. (ed.), Latin American Economic Integration (New York: Praeger, 1966);Google ScholarHaas, Ernst B. and Schmitter, Philippe C., The Politics of Economics in Latin American Regionalism, Monograph Series in World Affairs (Denver: University of Denver, 1965);Google ScholarCale, Edward G., Latin American Free Trade Association: Progress, Problems, Prospects (Washington: Office of External Research, US Department of State, 1969);Google ScholarWionczek, Miguel S., “The Rise and Decline of Latin American Economic Integration,” Journal of Common Market Studies, 09 1970 (Vol. 9, No. 1), pp. 49–66;CrossRefGoogle Scholar and Grunwald, et al.

4 Milenky, Edward S., “From Integration to Developmental Nationalism: The Andean Group 1965–1971,” Inter–American Economic Affairs, Winter 1971, (Vol. 25, No. 3), p. 80.Google Scholar

5 The determination to work within the LAFTA framework was stated in the Declaration of Bogotá and demonstrated by the fact that the Andean countries sought and received approval for their subregional integration effort from the other LAFTA countries. See Avery, William P. and Cochrane, James D., “El Mercado Comùn Andino: un enfoque subregional de la integracion,” Foro Internacional, enero–marzo 1972 (Vol. 12, No. 3), pp. 357–372;Google Scholar and The Andean Common Market (New York: Business International Corporation, 1970), especially pp. 5–8.Google Scholar

6 Tough opposition from its business community prevented Venezuela from signing the agreement. The ACM remains open to Venezuela, however, and negotiations are presently underway regarding the terms of that country's entry. For a brief description and analysis of Venezuela's stance toward the Andean Common Market, see: Avery and Cochrane, pp. 368–370. A fuller treatment, including Venezuela's position toward LAFTA, is in Clark, Robert P. Jr, “Economic Integration and the Political Process: Linkage Politics in Venezuela,” in Contemporary Inter–American Relations: A Reader in Theory and Issues, edited by Ferguson, Yale H. (Englewood Cliffs: Prentice–Hall, 1972), pp. 522–543.Google Scholar

7 The two agreements are by no means the only agreements that give substance and structure to the Andean Common Market. They are, however, the basic, fundamental ones.

8 Milenky, pp. 82–83.

9 For a discussion of one effort to “sell” the idea of economic integration to the private sector, see Schmitter, Philippe C. and Haas, Ernst B., Mexico and Latin American Economic Integration, Research Series No. 5 (Berkeley: Institute of International Studies, University of California, 1964), especially pp. 13–14.Google Scholar

10 Milenky, p. 83.

11 The Venezuelan proposal is significant for the rather severe restrictions it would have placed on the level of integration aimed at. Briefly put, Venezuela's position was one that

…placed primary emphasis on planned integration programs for selected new industries or products, while preserving the protective barriers shielding existing high–cost industries. Where the Cartagena draft [of 1968] called for complete dismantling of intra–Ancom tariffs within 11 years—or 16 years for a limited number of exemptions—and construction of a common outer tariff (COT) within the same period, the Venezuelan version would permit each country to an unlimited number of existing products from tariff cuts for an indefinite period, and would postpone the adoption of a COT until LAFTA as a whole does so. These fundamental changes would in effect reduce Ancom from a common market to a series of complementation agreements for new industries. (The Andean Common Market, p. 6).

12 Cale, p. 17.

13 ibid.

14 The Andean Common Market, p. 7.

15 As previously noted, Venezuela is an exception to the building up of private sector support. That country's politically influential Federation of Chambers of Industry (FEDECAMARAS) opposed various provisions of the subregional agreement, particularly those calling for duty–free regional trade. The opposition of that and some other groups, including some foreign interests, was sufficient to deter the government of Venezuela from signing the agreement.

16 Haas, Ernst B. and Schmitter, Philippe C., “Economics and Differential Patterns of Political Integration: Projections about Unity in Latin America,” in International Political Communities: An Anthology (Garden City: Doubleday, 1966), pp. 268–269;Google Scholar hereafter referred to as Anthology. In this study, Haas and Schmitter seek to develop what has come to be called a neo–functional theory of international integration. They suggest three sets of variables to evaluate an integrative effort and assess its consequences: background conditions, conditions existing at the time the integrative agreement is signed, and conditions prevailing after the agreement has been in force a few years (process conditions). Converging economic aims and political support are classified under what they term “governmental purposes” of the members at the time the agreement is concluded. (Other neo–functional variables are taken up within the Andean context below.)

17 Andean Subregional Integration Agreement, Article 1.

18 Grunwald, et al., p. 59.

19 Andean Subregional Integration Agreement, Articles 47–60.

20 ibid., Articles 61–68.

21 Comercio Exterior (Mexico), 03, 1971, p. 12.Google Scholar

23 Comercio Exterior (Mexico), 06, 1970, pp. 8, 14.Google Scholar

23 The products most likely to be covered by the sectorial programs are those which the Andean countries regard as the “dynamic sectors”: (1) basic metallurgy; (2) non–metallic minerals; (3) chemicals and petrochemicals; (4) pulp and paper products; (5) automotive parts and capital goods; (6) electrical and electronic products; (7) food processing. (The Andean Common Market, p. 37.)

24 Comercio Exterior (Mexico), 09 1971, p. 13.Google Scholar The petrochemical agreement, concluded before the Andean Common Market even became operational, was approved in July 1968, by the Mixed Commission. That agreement is discussed briefly in The Andean Common Market, pp. 40–41; and Grunwald, et al., p. 57.

25 For the full text of the agreement, including the assignment of products to each country, see: Grupo Andino, agosto, 1972 (separata num. 13), pp. 19–26.Google Scholar See also: Business Latin America, 08 31, 1972, pp. 273–275;Google Scholar and the New York Times, 08 26, 1972, sec. C, p. 31.Google Scholar

26 This date represents an attempt to accelerate sectorial industrial development; the original proposal called for a 1980 deadline.

27 Two products (pumps and manual looms) are to be shared by three countries, Chile, Colombia, and Peru.

28 Business Latin America, 08 31, 1972, p. 274.Google Scholar

29 For details on the integrated industries scheme, see Cochrane, James D., “Central American Economic Integration: The ‘Integrated Industries’ Scheme,” Inter–American Economic Affairs, Autumn 1965 (Vol. 19, No. 2), pp. 63–74.Google Scholar

30 Nye, Joseph S. Jr, “Comparing Common Markets: A Revised Neo–Functionalist Model,” International Organization, Autumn 1970 (Vol. 24, No. 4), p. 834.CrossRefGoogle Scholar

31 The basic statement is contained in Decision 24, although important modifications were added in later decisions. For the full text of the common system, including the modifications, see Comercio Exterior (Mexico), 03 1971, pp. 4–6, 7–10.Google Scholar

32 Wionczek, Miguel S., “U.S. Reaction to the Andean Group System for Treatment of Foreign Capital,” Comercio Exterior (Mexico), 06 1971, p. 28.Google Scholar Wionczek, who was a member of the group of experts which helped draft the investment code, discusses its preparation in “Hacia el establecimiento de un trato comùn para la inversion extranjera en el Mercado Comùn Andino,” El Trimestre Economico (Mexico), abril–junio 1971 (Vol. 38, No. 2), pp. 659–702.Google Scholar

33 Technology imports also are covered by the investment code, in an effort to regulate and reduce the excessive costs Andean countries pay for technology.

34 Wionczek, , Comercio Exterior (Mexico), 06 1971, p. 28.Google Scholar He maintains further that “top executives of U.S. oil companies were especially active in this period,” seeking to block the code.

35 Council of the Americas, “An Analysis of the Common Regime for Treatment of Foreign Capital, Trademarks, Patents, Licenses, and Royalties,” (New York, 1971),Google Scholar mimeographed; and the New York Times, 04 4, 1971, sec. F, p. 15.Google Scholar The council's survey of seven executives representing member–companies in automobile, banking, drug, insurance, manufacturing, mining and petroleum, concluded that a large majority of the code's articles would “mildly deter” or “definitely deter” foreign investment in the Andean Common Market. A somewhat different view was expressed, however, in a recent survey of senior executives in twenty United States corporations with investments in the Andean region. The majority expressed an open, “wait and see” attitude and felt that if there was a chance for reasonable returns on investments, the code would not deter the flow of foreign capital to the region. Most important, all the executives interviewed, save one, stated that they could live with the sharing of corporate ownership. See “How Will Multinational Firms React to the Andean Pact's Decision 24?: A Survey of Twenty Corporations,” Inter–American Economic Affairs, Autumn 1971 (Vol. XXV, No. 2), pp. 55–65.Google Scholar

36 Colombia's total foreign investments comprise approximately 70 percent of its total industry, making it more vulnerable to foreign economic pressures than the other Andean countries. Evidence of this vulnerability surfaced in the form of a suit brought before the Colombian Supreme Court by business opponents of the common system. The court ruled that the presidential decree putting the code into effect in Colombia was unconstitutional, that the issue was one to be decided by Congress. President Pastrana is expected to take the issue to Congress this year and, with his strengthened position since the mid–term elections, he is expected to win support for the code.

37 Wionczek, , Comercio Exterior (Mexico), 06 1971, pp. 28–29.Google Scholar

38 Nye, Joseph S. Jr, “Central American Regional Integration,” International Conciliation, 03 1967 (No. 562), pp. 50–57.Google Scholar

39 The only other attempt in integrative movements among developing countries to develop a common policy on foreign capital was an unsuccessful one by members of the East African Community.

40 For details regarding administration in Latin American countries, see Anderson, Charles W., Politics and Economic Change in Latin America: The Governing of Restless Nations (Princeton: Van Nostrand, 1967),Google Scholar especially chapters 5 and 6.

41 Krause, Walter, “Integration as a Strategy of Development for Latin America,” paper presented at the Conference of the Midwest Association of Latin American Studies, University of Kansas, 10 1971, p. 30.Google Scholar

42 For more on this topic, see “Agricultural Policy in the Countries Signatory to the Andean Subregional Integration Agreement,” Economic Bulletin for Latin America, 1971 (Vol. XVI, No. 2), pp. 99–119.Google Scholar

43 The drafters of the Andean agreement recognized that implementation of its various provisions might entail some consequences that were temporarily disruptive or economically unfavorable and allowed for the invoking of exemptions in such situations. Specifically, what is allowed is the application of protective measures and delay in tariff reductions. A country desiring to impose protective measures or delay tariff reductions is required to make known the products it wishes to protect or exempt within a year after the agreement goes into force. (No exemptions can be claimed for items that have been placed on the first LAPTA Common List.) During 1974, countries that have claimed exemptions must establish procedures for the gradual and automatic termination of the protection and exemptions. Termination is required by the end of 1985, except for Bolivia and Ecuador.

44 Andean Subregional Integration Agreement, Articles 78–81.

45 Most of the exceptions to the two–thirds majority rule are in areas where decisions are likely to be most difficult and controversial. Approval of sectorial programs and the common external tariff, for example, is tied to a rather complex voting procedure. An affirmative two–thirds majority with no negative votes is required on proposals in these areas. If a negative vote (veto) is cast, the proposal is returned to the Junta for further study and consideration of the reasons for the veto. The amended proposal must be resubmitted to the Commission within two to six months. This time the proposal can be approved by a favorable two–thirds vote, not counting the original veto, provided no additional negative vote is cast. It is possible under such a procedure to eventually “ram through” proposals that meet with initial opposition. Other exceptions require a two–thirds favorable vote without a veto, but do not carry the provision for not counting the first veto on a second vote. These exceptions include decisions to amend the agreement, accelerate the schedule for trade liberation, add power to the Junta, and develop agricultural planning. Interestingly, this rule also applies to amending the Junta's proposals, suggesting that the Junta's role is taken seriously. (Andean Subregional Integration Agreement, Article 11.)

According to neo–functional theory, an integrative arrangement is significantly more powerful if voting is by a weighted majoritarian formula, rather than unanimity or a modified two–thirds formula. (See Haas, and Schmitter, , in Anthology, p. 270.Google Scholar) While the voting procedure of the Andean agreement is tempered in some cases by the provision to disregard a first–vote veto on the second vote, the important exceptions make it less effective as a barrier to excessive interplay of national interests than does a strictly majoritarian formula.

46 Members of the Junta are: Felipe Salazar Santos (Colombia), Salvador Lluch Soler (Chile), and Germánico Salgado (Ecuador).

47 Andean Subregional Integration Agreement, Article 14.

48 ibid.

49 In neo–functional theory, decision–making style is a major variable among the “process conditions” of integration. (Haas, and Schmitter, , in Anthology, pp. 271–272.Google Scholar)

50 The Andean Common Market, p. 13.

51 ibid.

52 ibid.

53 The contributions of the member–countries are as follows: Chile, Colombia, Peru, and Venezuela, $5.5 million each; Bolivia and Ecuador, $1.5 million each.

54 Andean Air Mail and Peruvian Times, 10 22, 1971, p. 7.Google Scholar The credit from the Soviet Union has symbolic and psychological importance as well as financial. It can be regarded as lessening of dependence on traditional sources of capital, particularly United States sources. Indeed, the ACM countries are actively seeking formal ties with the EEC and Japan in an effort to reduce dependence on the United States.

55 Grunwald et al., p. 57.

56 Sanders, Thomas G., “Andean Economic Integration,” American University Field Staff Reports, 1968 (Vol. 15, No. 2), p. 8.Google Scholar

57 Andean Air Mail and Peruvian Times, 10 22, 1971, p. 7.Google Scholar

58 Haas, and Schmitter, , in Anthology, pp. 266–268.Google Scholar

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60 Nye, , International Conciliation (No. 562), pp. 50–57;Google Scholar and “Patterns and Catalysts in Regional Integration,” International Organization, Autumn 1965 (Vol. XIX, No. 4), pp. 370–384.Google Scholar

61 Some contend that the notion of strong “core areas” which provide centripetal force is a more compelling argument than equality in size and power. See, for example, Russett, Bruce M., International Regions and the International System: A Study in Political Ecology (Chicago: Rand McNally, 1967).Google Scholar

62 Barrera and Haas, p. 155.

64 For example, see Haas, and Schmitter, , in Anthology, p. 267;Google ScholarPuchala, Donald J., “International Transactions and Regional Integration,” International Organization, Autumn 1970 (Vol. 24, No. 4), pp. 732–763;CrossRefGoogle Scholar and Deutsch, Karl W., and others, Political Community and the North Atlantic Area: International Organization in the Light of Historical Experience (Princeton: Princeton University Press, 1957).Google Scholar Some of the issues concerning the relevance of transaction analysis are discussed in Inglehart, Ronald, “An End to European Integration,” American Political Science Review, 03 1967 (Vol. 59, No. 1), pp. 91–105.CrossRefGoogle Scholar

65 Nye, , International Organization, Autumn 1970 (Vol. 24, No. 4), p. 812.CrossRefGoogle Scholar

66 Reinton, Per Olav, “International Structure and International Integration: The Case of Latin America,” Journal of Peace Research, 1967 (Vol. 4), 334–365.CrossRefGoogle Scholar

67 To illustrate, suppose that Bolivian exports to Peru comprise 85 percent of Bolivia's total Andean exports and Bolivian imports from Peru make up 60 percent of Bolivia's total regional imports. The interaction score for the Bolivia–Peru (XY) pair would then be 145. If Peruvian exports to Bolivia constitute only 5 percent of Peru's regional exports and Peruvian imports from Bolivia are 4 percent of Peru's Andean imports, we get a score of 9 for the Peru–Bolivia (YX) pair.. Bolivia thus would be considerably more dependent upon Peru for regional trade transactions—the pair would be disequilibrated, with Peru dominant.

68 Haas, and Schmitter, , in Anthology, p. 267.Google Scholar

69 ibid., pp. 278–279.

70 For a discussion of the relationship of traditional values to economic development in Latin America, see Lipset, Seymour Martin, “Values, Education, and Entrepreneurship,” in Elites in Latin America, edited by Lipset, S. M. and Aldo, Solari (New York: Oxford University Press, 1967), pp. 3–60.Google Scholar On group activity in Peru and Chile, see Astiz, Carlos A., Pressure Groups and Power Elites in Peruvian Politics (Ithaca, N.Y.: Cornell University Press, 1969);Google Scholar and Burnett, Ben G., Political Groups in Chile (Austin, Texas: University of Texas Press, 1970).Google Scholar

71 Nye, , International Organization, Autumn 1970 (Vol. 24, No. 4), p. 817.CrossRefGoogle Scholar

72 Schmitter, p. 332. Schmitter does not indicate how he derived the “categorized indicator of freedom of the press and opinion.”

73 ibid.

74 Nye, , International Conciliation (No. 562), pp. 50–57;Google Scholar and International Organization Autumn, 1965 (Vol. XIX, No. 4), pp. 370–384.Google Scholar

75 Barrera and Haas, p.152.

76 Schmitter, p. 334.

a LAFTA calculations from Schmitter, Philippe C., “Further Notes on Operationalizing Some Variables Related to Regional Integration,” International Organization, Summer, 1969 (Vol. 23, No. 2), p. 335.CrossRefGoogle Scholar Data for Andean region taken from Statistical Abstract of Latin America, 1969 (Los Angeles: University oi California, 1970);Google Scholar and Statistical Abstract of Latin America, 1970.

b LAFTA investment figures taken from Statistical Abstract of Latin America, 1963, table 44. Investment figures for Andean region taken from US Department of Commerce, Survey of Current Business, 10, 1969 (Vol. 49, No. 10), pp. 28–29.Google Scholar

77 Cockcroft, James D., “Chilean Dependence and the Multinationals,” paper presented at annual meeting of the American Sociological Association, New Orleans, Louisiana, 08 28, 1972, p. 1.Google Scholar Quoted with permission.

78 ibid., p. 3. Cockcroft reports that among Chile's 50 largest non–financial companies, two–thirds of the top Chilean corporate officials have such ties to external interests.

79 Nye, , International Organization Autumn 1970 (Vol. 24, No. 4), p. 208.CrossRefGoogle Scholar

80 See Comercio Exterior (Mexico), 11 1970, pp. 6–8;Google Scholar and Sanders, Thomas G., “Chile—The Election and After,” American University Field Staff Reports, 09 1970 (Vol. 17, No. 10), p. 10.Google Scholar

81 Further evidence of the high aims of the Andean Common Market is the recently announced proposal to create an independent regional jurisdictional body which would rule on matters relating to the operation of the integrative movement. If such a plan is carried out, it would represent a significant step toward higher integration, the first of its kind in Latin America.

82 Amitai Etzioni attributes part of the success of the European Economic Community to the well–defined phasing of adjustments. See his “European Unification: A Strategy of Change,” in International Political Communities: An Anthology (Garden City: Doubleday, 1966), p. 104.Google Scholar

83 Furtado, Celso, Economic Development of Latin America: A Survey from Colonial Times to the Cuban Revolution, Translated by Suzette, Macedo, Cambridge Latin American Studies (London: Cambridge University Press, 1970), pp. 202–203.Google Scholar

84 Ibarra, David, “Notes on Latin American Integration,” Comercio Exterior, 11 1971, p. 18.Google Scholar

85 ibid.