Canada’s Latin American trade complications

Despite PM’s push, more deals with region unlikely in the near future

President-elect Andrés Manuel López Obrador’s electoral victory in Mexico is one of the factors complicating a push for closer trade between Canada and Latin America | Octavio Hoyos/Shutterstock

Despite earning a mention from Prime Minister Justin Trudeau during his appearance in Vancouver earlier in November, Latin America’s two multinational trade blocs are unlikely to commit to free-trade agreements with Canada in the near future.

That is the assessment of two high-level observers of Ottawa’s free-trade efforts globally, who both said there may be little short-term movement in free-trade talks between Canada and the Pacific Alliance (Mexico, Peru, Colombia and Chile) and Mercosur (Brazil, Argentina, Paraguay and Uruguay).

Their assessment came after Trudeau spoke to the Greater Vancouver Board of Trade on November 2. During his talk, Trudeau identified two emerging global market regions – Southeast Asia and Latin America’s two trade blocs – as an area to diversify trade.

“I remember saying [in 2014, at a separate board of trade meeting] that trade is our way forward,” Trudeau told the crowd at the meeting in Vancouver. “Four years later, I’m more convinced than ever that expanding access to new markets through modern, progressive trade agreements is the ticket to our success…. The push for more trade should never stop.”

Former Canadian trade negotiator Colin Robertson, now vice-president and fellow at the Canadian Global Affairs Institute, noted that while Canada should not ignore the Pacific Alliance and Latin America as potentially closer partners, the domestic situations in some of those countries may mean a delay in any meaningful progress with Canada on a free-trade agreement (FTA).

“I think with the change in government in Mexico, there will be a pause,” Robertson said, noting that the country is awaiting the inauguration of president-elect Andrés Manuel López Obrador on December 1. “There’s also the uncertainty of what’s happening in Peru [Opposition leader Keiko Fujimori was sent to jail last month due to a corruption scandal], so I don’t think that’s moving. And I don’t think Mercosur is moving, either, with [right-wing president-elect] Jair Bolsonaro in Brazil certainly talking protectionism. So I think both are both in limbo for now.”

Robertson added that, in the case of the Pacific Alliance, Canada already has an established FTA with each of the four members, and Mexico, Peru and Chile are all linked to Canada additionally through the new Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP, or TPP-11 after the United States pulled out of the accord). This, and Canada’s membership in the Pacific Alliance, mean that Canada may already be getting a significant portion of the benefits it would enjoy in a deal with the four-nation pact as a whole.

“It’d be better to try to focus on getting the Canada-Europe agreement [CETA] done, because we’ve only got about 11 of the 27 countries who have ratified it, and we still need France and Germany to do so,” Robertson said. “With the CPTPP, there’s a lot there to digest – especially with Japan, and that’s going to open our markets for pork and beef in the short term. So we have a lot on our plate.”

Carlo Dade, director of the Trade & Investment Centre at the Canada West Foundation, said the Pacific Alliance is a good fit for Canada, because it is committed to free trade and targets selling into the Asian market – something that may benefit Vancouver as a facilitator of air travel and people-to-people links between Asia and Latin America.

A problem that has continually re-emerged since 2011, Dade said, has been that the Pacific Alliance nations want to create a zone that facilitates the free movement of goods, services, capital and people. That last point – free access to Canada for citizens of those four countries – has been consistently rebuffed by Ottawa.

“They’ve made it clear to us in the past that visa-free travel would be a condition for any country to achieve full membership status,” Dade said. “For other associate members like Singapore and New Zealand, yeah, they will do it because it is a lot more expensive to reach Singapore or New Zealand, but you could see why this would run into problems with Ottawa.”

Dade did note, however, that it doesn’t mean there cannot be an alternative, such as a pre-approved, expedited business travellers’ program like the Nexus program administered by Canada and the United States. That may be the key to breaking the deadlock for Canada to move closer with the Pacific Alliance, he said.

Dade said he once pressed their foreign ministries as to whether the aim was visa-free travel as an end in itself, “or is it the movement of people to expedite business, to make business more efficient?”

“The answer was the latter,” he said. “So if we can come up with something that’s not visa
-free travel while achieving those ends, they would say yes…. They’d like us to be a member, and the door is open, but it’s been muddling along for the last five to six years.”

However, Dade was much more pessimistic about Mercosur. In March, Canada announced that the two sides were intensifying the impact assessment process for FTA negotiations.

But Dade noted the poor performances by the Brazilian and Argentine economies, and the lack of the level of integration seen in the Pacific Alliance, as reasons Canada should tread carefully when considering whether or not a deal with Mercosur is a good idea.

“The people who follow free trade hold up the Pacific Alliance as the model for facilitating trade,” Dade said. “Let me be unequivocally clear about this: engagement with Mercosur is a huge mistake. It’s a waste of time, and it will be counterproductive to our economic and trade interests. Europe has been negotiating an FTA with Mercosur for almost two decades, and they haven’t managed to close the deal.”

Another issue with Mercusor is some significant overlap in products such as beef and pork, which makes the two sides poor trade partners, Dade said. But on the Pacific Alliance, Dade noted that Canada may be squandering an opportunity to gain a level of integration in that market that may not present itself again if Ottawa does not hurry.

“With the TPP, we have a huge advantage over the Americans for moving Canadians into those countries on short-term work assignments,” he said. “The TPP allows us to go to another TPP nation to work much easier than it is for us to go to the United States – and not marginally easier, but Grand Canyon easier. If you can leverage that in Latin America, you can get more flights, get more companies to set up headquarters in Vancouver, and see more business on the ground. These could be very significant advantages for us to build out a Pacific gateway for people.”

Canada’s merchandise trade with Pacific Alliance nations reached $48 billion in 2016, which is more than 75% of Canadian trade in Latin America.