Andean Community of Nations: an opportunity that Colombia could take much more advantage of

August 16, 2023

Although Colombia has a trade surplus with the Andean Community of Nations, the dynamics of this integration agreement have been falling and trade with other countries outside the region is greater.

Andean Community of Nations, Bolivia, Colombia, Ecuador, Perú, CAN, Andean countries flags, Más Colombia

Now that Colombia is showing clear signs of economic deceleration, and manufacturing sector production has declined for the fourth consecutive month, with an annual variation of -4.8% as of June (DANE), thinking about how to take advantage of the markets Colombia has at hand, such as the Andean Community of Nations (CAN), takes on greater relevance.

Below, we tell you how our country’s trade relationship with the CAN has evolved, which in 2022 showed a trade surplus of USD $716 million and exports of USD $3,124 million (5.3% more than the previous year), and why it is possible to take advantage of this market much more.

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The promising birth of the Andean Community of Nations

The Andean Group, which gave rise to the Andean Community of Nations, is one of the oldest integration processes in the world, having entered into force in October 1969, and will be 54 years old in October 2023.

Initially, it was formed by Peru, Colombia, Chile, Ecuador and Bolivia. Venezuela joined in 1973 and Chile withdrew in 1976. In 1976, when the Trujillo Protocol was signed, it began to be known as the Andean Community of Nations (CAN).

During its first 20 years, what was later called Closed Regionalism prevailed. Under the predominant conceptions of ECLAC, this included industrial complementation plans and the application of preferences that did not apply to other countries outside the region, in addition to the search for a common external tariff, which was never fully agreed upon.

Subsequently, Open Regionalism was imposed, which constituted an effort to adapt the Andean Community of Nations to the predominant currents of free trade.

Changes in the Andean Community of Nations’ priorities

In the midst of the construction process in the 1990s and early 2000s, several factors altered the course of the Andean Community of Nations.

First, the creation of the World Trade Organization in 1994, which established multilateral disciplines aimed at global trade liberalization.

Secondly, the process that led to the Free Trade Area of the Americas (FTAA) negotiations from 1994 onwards, between 1998 and 2007.

In 2005, the Mercosur countries, Argentina, Brazil, Uruguay and Paraguay were accepted as associate members, a status that was granted to Chile in 2006. In the context of free trade agreement negotiations with the Andean region, Venezuela withdrew in 2006, in a process that lasted until 2011.

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The Andean regime includes a complete elimination of tariffs. The Andean Community of Nations has also achieved customs harmonization and a set of agreements on trade facilitation, technical barriers to trade, services and investment, sanitary and phytosanitary measures, intellectual property, competition and trade defense, among others.

1993 – 1997: intra-regional and manufacturing export boom

According to research by Germán Creamer, published in the magazine El Trimestre Económico, export growth in the 1980s was very low, possibly due to the debt crisis.

In the nineties, export growth was favored by the growth of the North American economy, especially the U.S. economy, to which exports increased at a rate of 12.5% per year between 1992 and 1997.

According to the same study, in the period from 1993 to 1997, Andean exports to the rest of the world grew 11.12%, but intra-regional exports grew 20.56%, reflecting the impact of the agreement on regional export dynamics.

Between 1990 and 1998, the proportion of manufacturing exports in relation to Andean Community of Nations exports rose from 26.7% in 1990 to 47.8% in 1998, reflecting the positive effect of integration on value-added exports.

The initial dynamics were not maintained

The initial positive dynamics of trade within the framework of the Andean Community of Nations did not achieve sufficient strength. According to an official Community report, in 2022, the main destination of Andean Community exports was the United States, with 20.1% of total external sales. It was followed by China, with 16.4%; the European Union, with 12.0%; Panama, with 6.8% and, in fifth place, the CAN Member Countries, with a share of 6.5%.

According to the balance made in mid-2023 by the Colombian Ministry of Commerce, Industry and Tourism of the trade agreements, in 2022 the main products exported to the Andean Community of Nations were: energy, medicines for human use, crude oil and beauty products.

Imports from the Andean Community were concentrated in copper wire, soybean oil, preparations and preserves, and palm oil, i.e. products with low value added.

In 2022, Colombia’s trade surplus with CAN was USD $716 million. In 2022, exports were USD $3,124 million, 5.3% more than the previous year, and imports were USD $2,519.4 million, 14% more than the previous year.

Mining-energy exports accounted for 94.6%. However, according to the Ministry, Colombia’s exports to the CAN are more diversified than those to third countries: in 2022 they covered 3,249 tariff subheadings (greater than USD $10 thousand), compared to 2,387 to the US or 1,670 to the European Union.