As the destination for three-quarters of Canadian merchandise exports, and a little more than half of our services exports, the United States of America will remain Canada’s largest trading partner for the foreseeable future. However, events of the last several months emphasize the need for Canada to diversify its trade. The imperative to re-balance the composition of Canada’s export basket has long been a creed in Canadian policy discussions — and getting there requires one small step at a time. Latin America has a role to play in that journey.
To date, Canada has a number of trade pacts in the region, including with Chile, Colombia, Costa Rica, Honduras, Panama and Peru. And we mustn’t forget that Mexico has a pact through the North American Free Trade Agreement. Nor should we forget that Canada’s trade agreements have a respectable record when it comes to increasing Canadian trade. Since the entry into force of our trade agreements with Panama and Colombia, our exports have increased by 64 per cent and 16 per cent, respectively. For Peru, Canadian exports experienced an 86-per-cent increase since that trade agreement came into effect.
However, there is more room to grow our trade in the region and two particular initiatives will help Canadian businesses: the Pacific Alliance and Mercosur.
Canada’s initial foray into the Pacific Alliance began in 2012 when it became the first non-Latin America observer country. The bloc is the destination for 68 per cent of Canadian investment in the region, and 79 per cent of our two-way trade in Latin America. It represents a group of like-minded countries that share the goal of deeper economic integration and breaking down trade barriers. Along with Singapore, Australia and New Zealand, Canada was invited to become an associated state of the Pacific Alliance in 2017.
Although Canada already has trade agreements with all four members of the Pacific Alliance — Chile, Colombia, Mexico, Peru — moving the relationship to the next level is vital for us to maintain our first-mover advantage. The process to become an associate member is effectively a trade negotiation with all four countries, and will lead to a new Canada-Pacific Alliance trade deal.
So what, specifically, are the additional benefits from an overarching trade deal? Canada’s trade deals with Pacific Alliance members have already eliminated most of the tariffs faced by Canadian companies. However, obstacles still exist. One potential benefit is accelerating tariff phase-out periods imposed in the existing bilateral trade deals, which have not reached the end of their staging period.
Canada’s negotiations with the Pacific Alliance also present an opportunity to build Canadian supply chains in the region with simplified rules of origin, instead of navigating the individual regimes that exist in order for companies to take advantage of preferential tariff rates. Given the Pacific Alliance is in the midst of an ambitious expansion phase, the Canadian government should include forward-looking provisions that could permit the addition, in the future, of other parties. These provisions could be particularly valuable given the overlap in membership with the Comprehensive and Progressive Agreement for Trans-Pacific Partnership.
Since Canada has signed its original trade agreements with the four Pacific Alliance countries, digital trade issues have taken on increased importance, and rightly so. The flow of digital information has proven itself to be a key driver of economic development and job creation. Digitally enabled services, which rely on cross-border data flows, are vital for Canadian companies of all sizes. This negotiation presents an opportunity for both Canada and the Pacific Alliance to position themselves as leaders on digital trade issues by including provisions against forced data localization or the disclosure of source code.
Those are just a few of the areas where a Canada-Pacific Alliance free-trade agreement can advance Canadian commercial interests in the region. We are hoping to see negotiations conclude towards the end of this year.
And there are other opportunities in Latin America, too. Further south on the continent, Mercosur is not well-trodden ground. Mercosur’s four members — Argentina, Brazil, Paraguay and Uruguay — have a combined GDP of $3 trillion and are a market of 260 million people. Argentina and Brazil are also members of the G20.
Canada’s negotiations there started with the first round in March of this year, shortly after our exploratory talks concluded. Although our negotiations with the bloc are likely to be slow-moving, it is important that we press ahead because securing this trade agreement would provide preferential access for 98 per cent of Canada’s trade in the region.
The first area of potential benefit is substantial tariff liberalization. Mercosur currently applies tariffs of up to 35 per cent on automobiles and parts, chemicals and plastics, machinery and forestry products. Pharmaceuticals face tariffs of up to 14 per cent and aluminum has tariffs of up to 20 per cent.
Further, labour-mobility provisions would ensure that Canadian companies are able to move their intra-company transferees where they are needed most in the region. Additionally, to support Canadian companies in Mercosur, the inclusion of strong investment protection provisions would provide greater certainty.
Over the coming months, the Canadian Chamber of Commerce will be working with our members to set out our priorities for the Mercosur negotiations. Canadian companies in the agri-food and mining sector are already well established in the region, and we see opportunities for those sectors to grow their business, as well as for others to enter the market.
With Argentina hosting the G20 this year, the Canadian Chamber will be on the ground in Buenos Aires in October for the Business-20 Summit. We will use the opportunity to make the case for the importance of this agreement, and advocate for Canadian business priorities. Maintaining momentum on this negotiation is key.
Although Latin America is not the only region where Canadian companies have potential to increase exports, it is one that receives less prominence than it should. As Canada looks to diversify its export markets, it needs to look broadly around the world to see where the opportunity is greatest. The Canadian Chamber looks forward to working with the federal government, Latin American governments and our business federation counterparts in the region to help exporters access these opportunities.
Perrin Beatty is president and CEO of the Canadian Chamber of Commerce.