Canada – South America Trade

Niagara CollegeCanada – South America Trade

Maryse Kwizera, Paula Jaramillo, Justin Ross11/14/2011

This paper focuses on the trade relationship between Canada and South America. The connection between Canada and each individual South American country depends on the trading bloc these countries belong to. Hence, we have divided our work in two: the first part focuses on the Andean Community formed by Colombia, Ecuador, Bolivia and Peru; and the second explores Mercosur, integrated by Argentina, Paraguay, Uruguay and Brazil. Because Brazil is Canada’s most important partner in the region we have dedicated an important section to examine the historic commercial relation between these two nations.

Table of Contents

1. Introduction22. Current Trade23. The Andean Community34. Mercosur4 4.1. Brazil on the international stage5 4.2. Canada-Brazil Economic relationship at present5 4.2.1. Merchandise Trade5 4.2.2. Products6 4.2.3. Service and Investment6 4.2.4. Canada’s Non-Commercial relationship with Brazil7 4.2.5. Working on Expanding Existing Relations7 4.2.6. Diplomatic Relations and Official Representation7 4.2.7. Bilateral Relations85. Conclusion106. Appendix117. Bibliography14

1. Introduction

“Our neighbourhood doesn’t end at the 49th parallel—and neither do our interests. That’s why we will seek to re-engage relationships throughout the Americas.”[footnoteRef:1] Canada is a country that is continuously looking to expand its trade relations worldwide, it’s recent relations with Latin America and southern America are examples of what Canada is looking to do by establishing their presence internationally in the global marketplace. [1: Said by Prime Minister Stephen Harper in a foreign policy speech to the Canadian Club of Ottawa on February 6, 2007. Retrieved from: http://www.tradecommissioner.gc.ca/eng/pdf.jsp?did=108328&fn=LAC-e.pdf]

In the 1990’s Canada’s trade relations between South Africa and Latin America began to dramatically intensify. There was the signing of the North American Free Trade Agreement (NAFTA) in 1994 that signaled the beginning of a new era of trade between Canada and many of the countries in Latin America and mainly South America. Many trade agreements are currently established with countries such as Chile and Costa Rica and many are underway in other countries in Central America. Canada is an active participant in the negotiations in the Free Trade Associations of the Americas (FTAA) as well as trade and investment cooperation agreements (TICAs) have been signed with many of these countries as well as the Mercosur trade agreement being established. As a result of the free trade agreements (FTAs) and the increase in liberalization, trade between Canada and these Latin American countries has more than doubled since the early 1990’s. Also in the past decade, Canadian investment in these countries has grown six-fold.

2. Current Trade

Canada increased its trade relations with Latin America with the signing of NAFTA (North American Free Trade Agreement) in 1994. From that year on, Canada has taken part in trade agreements with Chile, Colombia and Peru.

The value of exports from Canada to Latin America in 2001 accounted for only 2% of total exports; nevertheless, the value doubled during the 1990s, going from $2.4 billion in 1990 to $4.5 billion in 2001[footnoteRef:2]. The increase in trade was a lot greater the following years. Canadian exports to all countries had a 18.5% increase from 2003 to 2007, while the exports to the Latin American countries increased by 82.8%[footnoteRef:3]. [2: Latin America and the Caribbean ECLAC Washington Office. Canada’s Trade and Investment with Latin America and the Caribbean (2003). Retrieved on November 5, 2011 from: http://www.eclac.org/publicaciones/xml/0/11960/lclwasl61.pdf) ] [3: Western Canada's Economic Relationship with Lac. Trade Patterns. Retrieved on November 5, 2011 from: http://www.wd.gc.ca/eng/11107.asp ]

Canadian exports to Latin America are made up by 40% commodities and 60% semi-finished and fully finished goods. In 2005 exports amounted to $8.40 billion (the highest so far), but the value went down to $5.87 billion the following year. Two-way trade in 2008 was $16.8 billion, with a 10% increase from the previous year.

Canadian companies are the third larger investors in the region. Foreign direct investment in Latin America grew in 2008 to $100.1 billion. Most of the investment is in extracting industries in the region. The Andean Region is rich in oil, minerals and natural gas, constituting an attractive region for foreign direct investment. This FDI in return creates demand for Canadian expertise in environmental sector, as well as in the information and communication technology sector[footnoteRef:4]. [4: The Canadian Trade Commissioner Service. Latin America and the Caribbean Market Plan. Retrieved on November 5, 2011 from: http://www.tradecommissioner.gc.ca/eng/pdf.jsp?did=108328&fn=LAC-e.pdf]

Canada trade relations with Latin American have been improved thanks to the signing of Investment Cooperation Agreements (TICAs) with the Andean Community and with Mercosur.

3. The Andean Community

The Andean Community of Nations is a customs union integrated by Bolivia, Colombia, Ecuador, and Peru. Canada and the Andean Community signed a TICA in 1998.

Canada has got closer to the region in the past decade; and it maintains a positive relationship with all members of the Andean Community. Because the Community sees Canada as an important ally and its relationship with the nation as an important step to increase its global competitiveness, efforts have been made to improve economic and trading ties.

In 1999 Canada and the Andean Community signed the Cooperation Understanding on Trade Investment and compromised to promote the liberalization of trade and investment, cooperate in the private sector and strengthen their economic relations.[footnoteRef:5] . Both parties also created a Consultative Group on trade and investment formed by the ministers of trade of all five countries involved to further promote their goals. [5: Comunidad Andina, Common Foreign Policy Canada. Retrieved from: http://www.comunidadandina.org/ingles/exterior/canada.htm]

Consistent with its Global Commerce Strategy (GCS), Canada, decided it should pursue trade agreements in the Hemisphere and in June 2007 the Canadian government started negotiations with the Andean Community countries of Colombia and Peru. On May 29, 2008, Canada signed a free trade agreement with Peru and a week later it concluded negotiations for an FTA with Colombia.

In 2008, Canadian direct investment in the Andean Community was $3.5 billion, 66% of which took place in Peru. Nevertheless, in 2005 the investment had been a 13% higher. The bilateral trade between the Andean Community and Canada amounted to $4.7 billion, separated into $3.4 billion exports to Canada and $1.3 billion imports from Canada. The decrease both in foreign direct investment and in trade was caused by the financial crisis of 2008 and by the withdrawal of Venezuela from the Community in 2006. Imports from Canada had been $1.8 billion in 2007.[footnoteRef:6] Both top exports and top imports have been about the same for the past decade. [6: Agriculture and Agri-food Canada. Canada-Andean Community Trade and Investment. Retrieved from: http://www.ats.agr.gc.ca/lat/4326-eng.htm]

· Canada’s top exports to the Andean Community are: wheat, leguminous vegetables, paper/paperboard, non-metallic minerals, and vehicles/vehicle parts for construction.

· Canada's top imports from the Community are: precious stones/gold and silver, mineral fuels and oil, edible fruits and nuts (mostly bananas), copper/nickel/zinc/lead, and coal.

In 2008 Canada took 3.4% of the Community total exports; and Canada’s products represented 1.5% of the Andean Community total imports. The North American Free Trade Agreement, integrated by Canada, the United States and Mexico, was both the greatest importer and exporter to the Andean Community. Bilateral Agricultural trade between Canada and the Community was over $942.6 million in 2008. Of the top Canadian products imported by the Community, wheat is the greatest, with over 60% of total exports. Colombia imported 44% of the Canadian agricultural products ($465.7 million in 2007)[footnoteRef:7]. [7: Agriculture and Agri-food Canada. Canada-Andean Community Trade and Investment. Retrieved from: http://www.ats.agr.gc.ca/lat/4326-eng.htm]

In 2008 about 69% of the Canadian agricultural exports to the Andean Community were bulk exports, of which about roughly 80% were wheat, nes and meslin. Twenty-seven percent of agricultural products were intermediary exports of which 56% were shelled dried lentils.

4. Mercosur

Known as the Common Market of the South, Mercosur is South America’s leading trading bloc and it is responsible for more than 75% of the economic activity on the continent. It was formed in 1991 by Argentina, Brazil, Paraguay, and Uruguay; the first two being its economic giants. Mercosur associate members are Bolivia, Chile, Colombia, Ecuador and Peru; these countries are not part of the customs union but can join free-trade agreements. The main goal that Mercosur aims toward is economic cooperation between the participating countries by lowering trade barriers to the movement of goods, services and labor within the trade bloc.

This bloc offers a great attractiveness for Canada in the fields of: aerospace, life sciences, infrastructure, information and communications technology, clean technology, mining, and oil and gas[footnoteRef:8] In 2010, two-ways trade between Canada and Mercosur nations reached $7.9 billion. With no doubt Mercosur member Brazil is Canada’s greatest partner in the in South America. [8: Canada Explores Deepening Trade Ties with South America’s Largest Common Market (June 24, 2011). Retrieved on November 5, 2011 from: http://www.international.gc.ca/media_commerce/comm/news-communiques/2011/178.aspx?view=d]

4.1. Brazil on the international stage

Brazil is the single most prominent economic power in South America; it is the largest of any other of the economies combined in South America. As well, Brazil is also the largest and most dominant country in the economic engine that is known as the Southern Cone Common market (Mercosur). In addition to Brazil’s role in Mercosur, Brazil is continuing to expand its presence internationally by actively participating in other groups such as the World Trade Organization (WTO) as well as the G-20.

Brazil is one of Latin America's most enticing markets, boasting stable mining, manufacturing and agricultural sectors and a dynamic, innovative science and technology industry. Economically secure, with a vast and well-educated workforce, Brazil offers Canadians an attractive investment environment with room for substantial growth.

4.2. Canada-Brazil Economic relationship at present

Brazil is a priority market for Canada. It is a major economic player, not just in South America, but also globally as our 10th largest trading partner globally. Brazil is Canada’s largest merchandise trading partner in the Latin America and Caribbean region (excluding Mexico). Canada-Brazil commercial relations are growing across the board – in 2010, our investment relationship totalled $ 26 billion and two-way trade reached $5.9 billion.

4.2.1. Merchandise Trade

Canada’s trade relationship with Brazil is rather small given the size of each of the economies. Canadian/Brazilian economies have a combined value of US $3.1 Trillion, but only just $5.3 billion in merchandise trade in 2008, with $2.6 Billion in Exports from Canada and $2.7 billion in imports from Brazil. The Trade relation between Canada/Brazil is not considered large, but it has expanded in the last few years. In 2008 Canadian exports to Brazil grew 71% from the previous year. Brazil is the second largest destination for exports in Latin America behind Mexico and the 12th largest worldwide. As well Canada is Brazil’s 2nd largest source of imports in Latin America and respectively 16th worldwide.

In 2010, merchandise exports to Brazil totalled $2.6 billion, an increase of 70.7 percent from 2007, and included the following sectors: agriculture, mining, shopping centres, telecommunications, software, environmental industries, and automotive parts. Merchandise imports from Brazil to Canada in 2010 reached $3.3 billion, including in the following sectors: mining, steel, beverages, cement, and software.

Two-way investment, in particular, has seen substantial growth in recent years. Brazil was the 8th source globally of Foreign Direct Investment in Canada with $13.5 billion in cumulative stocks as of 2010. Brazil was the 11th largest recipient of Canadian Direct Investment Abroad, with a total of $9.7 billion in 2010.

4.2.2. Products

Canadian exports to Brazil are mainly evenly distributed between resource-based goods and manufactured items, but in specific products, Canadian exports are mainly resource based as their largest export to Brazil in recent years has been potash followed by sulphur and coal. Respectively Brazilian imports are evenly divided between manufactured products and resource-based goods, but Brazilian resource based imports are largely in agricultural products. Canada’s leading imports from Brazil include: cane sugar, vehicle parts, coffee, aircrafts, aluminum oxides and oranges. Canada is a net exporter of machinery and equipment to Brazil because of strong growth and weak imports. It has also become a very large exporter of extractive-industry items and forestry products and Canada’s trade deficit between Brazil in regards to agricultural goods is continuing to widen.

4.2.3. Service and Investment

Canada is one of the world’s largest net exporters of services to Brazil, which in 2006, Canadian service exports totaled $364 million, while imports totaled $251 million and services between the two countries have been quite high since the mid-90’s. Canada is an active investor in mining and mining-related services in Brazil, as there are over 128 Canadian companies currently mining in Brazil, as well as the top two gold producers in Brazil are Canadian. But the total amount of Brazilian investment in Canada is even larger. Brazilian direct investment has expanded in recent years quite rapidly, mostly due to large-scale takeovers of Canadian companies by Brazilian business interests. As a result of these investments, Brazil is ranked 7th in the source of foreign direct investment in Canada.

4.2.4. Canada’s Non-Commercial relationship with Brazil

Commercial activity is at the core of Canada’s trade relations with Brazil, but ties are growing between the two in other areas as well. Canada has issued a record of 55,000 visas to Brazilian visitors in 2008, mainly for educational purposes but immigration visas and work permits are also rising. The two are working together to increase in the fields of security and defense, based on their cooperation in Haiti; relationships are being formed in senior levels of the military. Canada has also put forth efforts to help Brazil enact judicial reform, as ongoing issued in Brazil has obliged Canada to continue its efforts to help Brazil in these subjects.

4.2.5. Working on Expanding Existing Relations

Canada is continuing to recognize the importance of expanding economically in its relations with Brazil and is taking many steps to advance in this goal. Canada has specifically identified Science and other technologies as another form of partnership, and is therefore looking to make a bilateral relationship based on science and technologies and business innovation. This strategy is known as the Canada-Brazil framework agreement for cooperation on Science, Technology and Innovation, which was signed in November 2008. Canada has committed and provided over $1.5 million over 2 years to fund research between Canadian and Brazilian businesses. Once these agreements have been ratified by congress the funds available with double.

The Canadian Embassy and consulates in Brazil have identified a number of sectors that are now considered a priority which hold many opportunities for Canadian businesses. These sectors mainly include oil/gas recovery, mining, info and communication technologies, environmental technologies as well as arts and culture. Committee members also heard that there are a variety of opportunities in infrastructure in transportation, especially the railway industry.

Building closer ties with Brazil is a major area where Canada is looking to expand; therefore Canada is attempting to expand its diplomatic presence. Canada is also looking to increase its efforts to engage with Brazil at the government level. Minister to foreign affairs Lawrence Cannon visited Brazil in 2009 and Minister of trade Stockwell Day visited later that year. Many more senior government officials have travelled to Brazil in recent months to work with their Brazilian counterparts, and recently an official visit to Canada from Brazilian President Lula da Silva is being planned.

4.2.6. Diplomatic Relations and Official Representation

Canada opened its first trade office in Brazil in 1866. Canada’s Embassy in Brazil opened in 1944, with Jean Désy as Canada’s first Ambassador to Brazil.

In May 1941, Brazil opened a legation in Ottawa. The first Brazilian Ambassador to Canada was João Alberto Lins de Barros. In the years following the Second World War, Brazil was the centre of Canadian foreign policy in South America.

In Brazil, Canada is represented by the Embassy of Canada in Brasilia. Canada is also represented by Consulates General in both São Paulo and Rio de Janeiro. Canada’s visa office in São Paulo is our fourth busiest in the world. Canada’s Trade Commissioner Service has expanded to include offices in Belo Horizonte, Recife and Porto Alegre. Brazil is represented in Canada by an Embassy in Ottawa. Brazil also has consulates in Montréal, Toronto, and Vancouver.

4.2.7. Bilateral Relations

Brazil is at the nexus of the Government of Canada’s Americas Strategy and Global Commerce Strategy. Canada-Brazil relations have grown increasingly closer based on our strategic interests and engagement based on the promotion of security, prosperity and democratic governance. Our relationship has been strengthened by extensive whole-of-government cooperation in many sectors, such as health, defence, agriculture, and science and technology.

Canada and Brazil share vast, sparsely inhabited territories and the richness that comes from multicultural and multiethnic diversity, including our indigenous populations. Canada’s relationship with Brazil is growing, as indicated by the level of official visits, burgeoning trade and investment, and greater interest in both countries in learning more about the other from both a public policy and person-to-person perspective.

In June 2011, Minister of International Trade and Minister for the Asia-Pacific Gateway, Ed Fast travelled to Brazil (Rio de Janeiro, Brasilia and São Paulo) and Paraguay accompanying an infrastructure mission with members of the business community. Minister of Public Works and Government Services and Minister for the Status of Women, Rona Ambrose, represented Canada at the inauguration ceremony for President Dilma Rousseff on January 1, 2011.

Canada and Brazil have signed a number of Agreements, Treaties and Memoranda of Understanding over the years in a diverse range of areas, such as science and technology, education, health, sustainable mining and labour.

From a multilateral standpoint, Canada and Brazil work increasingly together at the Organization of American States, the United Nations, the G20 and the World Trade Organization. Areas of common interest include promoting cultural diversity, engaging in peacekeeping operations, and furthering respect for human rights globally. Collaboration in third countries is of interest to both countries, as exemplified by the current fruitful cooperation in Haiti. As major agricultural producers, Canada and Brazil have a vital role to play in addressing food and security in the region and beyond. kkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkkk

Research and innovation are also core elements of Canada’s trade agenda and an increasing point of mutual convergence in our relations with strategic economies, such as Brazil. Examples are proliferating in which scientific discovery is matched to firms that can exploit innovative elements for commercial advantage – illustrating the breadth of possibilities envisaged through the Canada-Brazil Agreement on Science and Technology

The Government of Canada, through the Canadian International Development Agency, aims to contribute to the achievement of greater equity in Brazil while reinforcing bilateral relations between Canada and Brazil. CIDA's program in Brazil is about sharing ideas, models and knowledge between strategic Canadian and Brazilian organizations that have the capacity to adapt new knowledge to resolve their own development challenges.

Since 1996, the bilateral component of Canada's development cooperation program in Brazil has been based on a technology transfer approach, in which technology refers to Canadian approaches or models which incorporate unique know-how or expertise, and technology transfer refers to sharing these approaches with capable partners in Brazil that could successfully adapt them to meet pressing development challenges. Canada's Cooperation Strategy in Brazil 2005-2010 (also known as CIDA's 2005-2010 Country Strategy for Brazil) further develops this notion of technology transfer to one of knowledge exchange, in which both Canadian and Brazilian partners learn through an exchange of knowledge, models and experiences.

Brazil is Canada's largest trading partner in South America and is a primary destination for Canadian foreign direct investment, currently valued at C$5 billion. It is also one of Canada's major trade competitors especially for agricultural products and in the aeronautic field. Brazil plays a leadership role in trade negotiations in both the World Trade Organization and the Free Trade of the Americas Agreement. Politically, Brazil commands respect from both industrialized and developing nations in international and multilateral forums, and it uses its position to influence international systems to integrate the interests of middle-income developing nations. It is very often an important ally for Canada in multilateral forums such as the United Nations, where Brazil is seeking a permanent seat on the UN Security Council and the Organization of American States. Brazil's vast social and economic experiences in the last half-century make it a model for many other developing nations.

Canada and Brazil share vast, sparsely inhabited territories and the richness that comes from multicultural and multiethnic diversity, including our indigenous populations. Canada’s relationship with Brazil is growing, as indicated by the level of official visits, burgeoning trade and investment, and greater interest in both countries in learning more about the other from both a public policy and person-to-person perspective.

Brazil is a priority market for Canada. It is a major economic player, not just in South America, but also globally as our 10th largest trading partner globally. Brazil is Canada’s largest merchandise trading partner in the Latin America and Caribbean region (excluding Mexico). Canada-Brazil commercial relations are growing across the board – in 2010, our investment relationship totaled $ 26 billion and two-way trade reached $5.9 billion.

In 2010, merchandise exports to Brazil totaled $2.6 billion, an increase of 70.7 percent from 2007, and included the following sectors: agriculture, mining, shopping centers, telecommunications, software, environmental industries, and automotive parts. Merchandise imports from Brazil to Canada in 2010 reached $3.3 billion, including in the following sectors: mining, steel, beverages, cement, and software

Canada and Brazil have signed a number of Agreements, Treaties and Memoranda of Understanding over the years in a diverse range of areas, such as science and technology, education, health, sustainable mining and labor

5. Conclusion

Brazil is a country that is filled with economic potential and is one that Canada should continue to put forth a valiant effort to continue relations with. Along with Brazil, many of the other countries in Latin America have the same characteristics that Brazil puts forth, and should also be considered major priorities. Although Canada has significantly increased its relations with these countries, it is essential that this growth continues and Canada should also look to expand into other developing economies in Central/South America. Canada also should look to create more trade agreements with these countries so there can be little to no restrictions that can affect these relations. Altogether Canada has a very dependent relationship with these countries and we rely on them for many products, services and merchandise, as well as non-commercial items and we must not take our relationship with these countries for granted and continue to expand our trade relations for our economic growth.

6. Appendix

7. Bibliography

· Agriculture and Agri-food Canada. Canada-Andean Community Trade and Investment. Retrieved from: http://www.ats.agr.gc.ca/lat/4326-eng.htm

· Canada Explores Deepening Trade Ties with South America’s Largest Common Market (June 24, 2011). Retrieved on November 5, 2011 from: http://www.international.gc.ca/media_commerce/comm/news-communiques/2011/178.aspx?view=d

· Comunidad Andina, Common Foreign Policy Canada. Retrieved from: http://www.comunidadandina.org/ingles/exterior/canada.htm

· Latin America and the Caribbean Market Plan (2010) Retrieved from: http://www.tradecommissioner.gc.ca/eng/pdf.jsp?did=108328&fn=LAC-e.pdf

· Latin America and the Caribbean ECLAC Washington Office. Canada’s Trade and Investment with Latin America and the Caribbean (2003). Retrieved on November 5, 2011 from: http://www.eclac.org/publicaciones/xml/0/11960/lclwasl61.pdf)

· The Canadian Trade Commissioner Service. Latin America and the Caribbean Market Plan. Retrieved on November 5, 2011 from: http://www.tradecommissioner.gc.ca/eng/pdf.jsp?did=108328&fn=LAC-e.pdf

· Western Canada's Economic Relationship with Lac. Trade Patterns. Retrieved on November 5, 2011 from: http://www.wd.gc.ca/eng/11107.asp

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