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Free Trade Area • A free trade area eliminates all barriers to trade among member countries, but allows

each country to establish its own external trade barriers. The North American Free Trade Area (NAFTA) is an imperfect example of a free trade area. • A problem with free trade areas is the potential for trade deflection whereby non-member countries try to avoid trade barriers by initially exporting their products to a member country with low trade barriers, then re-exporting the products to a member country with high trade barriers. • Most free trade agreements specify rules of origin, which detail the conditions under which a good is classified as a member or non-member good to try to prevent trade deflection. Customs Union: A customs union combines the elimination of barriers to internal trade among member countries with the adoption of common external trade policies toward non-members. Trade deflection is not an issue in a customs union since member countries treat non-members in a uniform manner. A current example of a customs union is the Mercosur Accord, an agreement between Argentina, Brazil, Paraguay, and Uruguay. Economic Union: An economic union eliminates trade barriers between member countries, establishes a common external trade policy, follows a policy of factor mobility, and coordinates economic policies of member countries. An example of an economic union is the Belgium-Luxembourg Economic Union. In addition, the European Union is currently moving toward economic union status. 115 Political Union: • A political union combines the elements of an economic union with the added feature of complete political integration. The United States, transformed from 13 separate colonies into one, is an example of a political union.

DEFINITON The Andean Community is a trade bloc that comprises the South American countries of Bolivia, Colombia, Ecuador, Peru and Venezuela. This trade bloc was formerly called the Andean Pact and was started with signing of the Cartagena Agreement in 1969. The five countries together have 120 million people living in an area of 4,700,000 square kilometers, whose GDP in 2002 amounted to US$ 260 billion. On December 8, 2004 it was announced the merger would be called the South American Community of Nations, patterned after the European Union.

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The groundwork for the Community was established in 1969 in Cartagena Agreement. In 1979, the treaty creating the Court of Justice was signed and the Andean Parliament created and the Andean Council of Foreign Ministers were created. In 1983, the treaty creating the Court of Justice entered into effect. In 1991, the presidents approved the open skies policy and agree to intensify integration. In 1992, Peru temporarily suspended its obligations under the Liberalization Program. In 1993 the Free Trade Zone entered into full operation for Bolivia, Colombia, Ecuador and Venezuela. In 1994, the Common External Tariff was approved. In 1996, the Cartagena Agreement Commission approved the regulatory context for the establishment, operation, and exploitation of the "Simón Bolívar" Satellite System. In 1997, an agreement was reached for Peru's gradual incorporation into the Andean Free Trade Zone. In 1998, the Framework Agreement for the creation of a Free Trade Area between the Andean Community and the Mercosur was signed in Buenos Aires. In 2000, Meeting of the South American Presidents, at which the Andean Community Heads of State and Mercosur decide to launch negotiations for establishing a free trade area between the two blocs as rapidly as possible and by January 2002, at the latest. In August 2003, the Andean Community and Mercosur Foreign Ministers, during a meeting in Montevideo at which the CAN delivered a working proposal containing guidelines for the negotiation, reaffirmed their governments' political determination to move ahead with the negotiation of a free trade agreement between the two blocs.

History: The Andean Community dates back to 1969, when five South American countries (Bolivia, Chile, Colombia, Ecuador and Peru) signed the Cartagena Agreement in order to jointly improve their peoples’ standard of living through integration and economic and social cooperation. On October 30, 1976, Chile withdrew from it. Venezuela was a member from February 13, 1973, until April 22, 2006. Almost all of the Andean bodies and institutions were created during the first ten years of the integration process (in the seventies), except for the Andean Council of Presidents, which was set up in 1990. The policy or model that predominated in the seventies was the “import substitution” or “closed model” that protected national industry by imposing high duties on products brought into the country. The State and planning played an important role during this stage. This model entered a stage of crisis, making the eighties a lost decade for both the Andean countries and Andean integration. None of the countries in the region, from Mexico to Argentina, emerged unscathed from the debt crisis, which was reflected in the stagnation of the integration process. It was decided at a meeting held in Galapagos (Ecuador) in 1989, to replace the model of closed development with one of open development. Trade and the market became the driving forces and this was reflected in the adoption of a Strategic Design and a Working Plan in which trade occupied the leading position. The Andean countries eliminated tariffs on their trade with each other and in 1993 formed a free trade area. This gave a strong boost to trade within the Community, which increased heavily, creating thousands of new jobs. Trade in services was also liberalized, particularly the different modes of transportation. In 1997, the member countries decided, through the Trujillo Protocol, to introduce reforms to the Cartagena Agreement in order to bring it into line with the changes that have taken place on the international scene. These reforms put the leadership of the process in the hands of the Presidents and made the Andean Councils of Presidents and of Foreign Ministers a part of the institutional structure. The Andean Community was created to replace the Andean Pact. Since 2003, the integration process was given a social content as well. An Integral Plan for Social Development was established by Presidential mandate (Quorum, 2003) and little by little the development issues that had been present early in the process and later abandoned, were recovered.

In 2007, the Presidents of Bolivia, Colombia, Ecuador and Peru, meeting in the city of Tarija – Bolivia as the Seventeenth Andean Council of Presidents, declared that “it is necessary to develop and deepen the Andean Community integration process by taking more effective account of the visions and approaches of the Member Countries, in order to achieve unity within our diversity to serve our peoples’ wellbeing and our harmony with nature. It is necessary to forge a comprehensive integration movement in which social, cultural, economic, and environmental and trade aspects are in better balance”. This vision is reflected in the General Secretariat’s Working Plan for 2008, which provides for action in the areas of the Social and Political Area, Environment, External Relations and Economic y Trade Area.