Canada seeks to diversify trade partners amid rising U.S. protectionism, looking towards South America and the Mercosur trade bloc. While a free trade agreement has been proposed, experts are divided on its potential benefits and implementations, highlighting the necessity of cautious engagement and exploration of opportunities with established markets.
The rise of American protectionism is compelling Canada to seek new trade partners, with significant attention directed towards South America. According to Rambod Behboodi, an international trade lawyer, the increasing unpredictability of the U.S. necessitates Canada to explore trade relationships outside North America, particularly with Mercosur, the largest trade bloc with which it currently lacks a trade agreement.
Mercosur, founded in 1991 by Argentina, Brazil, Paraguay, and Uruguay, aims to promote free trade among member nations. This agreement has eliminated customs duties amongst member countries and introduced a common external tariff on imports, which currently averages 11.5 percent. Venezuela joined in 2012 but was suspended in 2016, while Bolivia was admitted as a full member in 2024.
Negotiations for a free trade agreement between Canada and Mercosur commenced in 2018, but progress has been slow. Comparatively, the European Union recently finalized their trade negotiations with Mercosur after 25 years. Behboodi notes that Canadian goods face tariffs of up to 35 percent in Mercosur, while the EU-Mercosur agreement aims to reduce tariffs to zero over time for European goods, which could place Canada at a competitive disadvantage.
In terms of trade volume, Brazilian exports to Canada reached US$6.31 billion last year, reflecting a 9 percent increase. However, Canadian imports from Brazil declined by 18 percent due to fluctuations in the Brazilian real. Key exports from Brazil include gold, aircraft, and coffee. This milestone exemplifies the strengthening bilateral ties over the past decade, according to Hilton Nascimento of the Chamber of Commerce Brazil-Canada.
Evelyne Coulombe, Canada’s ambassador to Germany, has advocated for the urgent finalization of a Canada-Mercosur free trade agreement, particularly highlighting potential benefits for sectors such as oil, gas, renewable energy, and information technology through collaborative technological exchange.
Not all experts, however, agree on the benefits of such an agreement. Fen Olser Hampson, an international affairs professor, argues that Canada and Brazil export similar products, which could hinder trade relations. He suggests that Canada would be more successful in expanding its trade with Asia and Europe rather than pursuing Mercosur.
Bernardo Blum emphasizes the importance of analyzing the EU-Mercosur agreement to gauge its effectiveness and the industries that benefit. Despite potential benefits, Blum predicts that a Canada-Mercosur agreement would not have a significant impact on trade, asserting that the disparity in size between the Mercosur and EU trade blocs diminishes the potential returns for Canada.
Recent data indicates that only 65 percent of Canadian exports to the EU utilized CETA preferences, suggesting that Canadian firms may be hesitant to fully engage with new trade agreements. Blum remarks, “Even if we see an increase in trade, I’m not sure what fraction or share of Canadian firms will actually go through the certification process to take advantage of the free trade agreement.”
Consequently, while South America presents opportunities for diversifying Canadian trade, the realization of a beneficial partnership through a Mercosur agreement remains uncertain, with many advocates urging caution and an emphasis on relationships with existing trade partners still within reach.
In summary, while South America, specifically the Mercosur bloc, presents a potential avenue for Canada’s trade diversification, challenges and uncertainties remain. Experts express mixed opinions on the viability of a Canada-Mercosur free trade agreement, suggesting a need for caution. With tariffs looming and the complexities of trade dynamics, Canada may benefit more from expanding relationships with established partners, particularly in Asia and Europe, than from pursuing a trade agreement with Mercosur at this time.
Original Source: financialpost.com
