As Canadian trade faces pressures from American protectionism, the country is exploring South America, specifically the Mercosur bloc, for new partnerships. However, experts express skepticism about the benefits of a Canada-Mercosur free trade agreement, emphasizing historical challenges and trade overlap with Brazil. The debate continues on the best path for Canada’s trade diversification.
The increasing protectionism in the United States has prompted Canada to seek new trade partnerships, with some experts suggesting that South America may offer viable opportunities. Given the unpredictable nature of U.S. trade relations, it is critical for Canada to establish commercial ties beyond North America, particularly with Mercosur, the largest trade bloc without an existing agreement with Canada.
Mercosur, which stands for Mercado Común del Sur, was established in 1991 by Argentina, Brazil, Paraguay, and Uruguay and aims to promote trade by removing customs duties among member countries. The bloc’s common external tariff (CET) serves to regulate imports from outside its borders, averaging 11.5%. Despite Venezuela’s initial membership, it was suspended in 2016, while Bolivia is anticipated to join as a full member in 2024.
Negotiations between Canada and Mercosur for a free trade agreement commenced in 2018, but no progress has been made since then. The European Union finalized its trade deal with Mercosur in 2022 after extensive negotiations lasting over two decades. This agreement is expected to significantly reduce import tariffs on EU goods, which raises concerns that Canada may miss out on growth opportunities in South America if it does not secure a similar deal.
As Canadian exporters face tariffs as high as 35% on certain goods, the lack of a free trade agreement with Mercosur could hinder market access. In 2022, Brazilian exports to Canada increased by 9% to reach approximately USD 6.31 billion, while Canadian imports from Brazil fell by 18%. This underscores Canada’s dependency on U.S. markets and the need to reassess its trade strategy in South America.
Canadian officials, such as ambassador Evelyne Coulombe, advocate for a Canada-Mercosur agreement citing opportunities in sectors like oil and gas, renewable energy, and information technology. This partnership could enhance collaboration and foster technological exchanges. However, not everyone shares this optimistic outlook.
Fen Olser Hampson, an expert on Canada-U.S. relations, argues the trade dynamics between Canada and Brazil may not be favorable due to overlapping exports of similar commodities. Furthermore, Hampson contends that Canada should increasingly prioritize trade with Asia and Europe over South America.
Moreover, experts emphasize the need to analyze existing agreements, like the EU-Mercosur deal, which demonstrates potential benefits but took years to finalize due to various concerns. They suggest that Canada may not experience considerable trade benefits from a Mercosur deal, drawing parallels to the Canada-European Union Comprehensive Economic and Trade Agreement (CETA), which had limited usage by Canadian firms.
Ultimately, the compatibility of industries and the historical reluctance of businesses to utilize free trade agreements pose challenges for maximizing trade relations with Mercosur. As Canada’s trade diversification becomes a pressing need, exploring deeper ties with other regions may yield more promising results.
In conclusion, while South America, particularly through Mercosur, presents potential opportunities for Canada to diversify its trade relationships amid rising American protectionism, significant challenges remain. Experts emphasize the need for a careful examination of existing trade dynamics and historical precedents to assess the viability of a Canada-Mercosur agreement. In light of overlapping export markets and the benefits observed in partnerships with Asia and Europe, Canada may benefit from strategically exploring diverse global trade avenues rather than relying solely on Mercosur.
Original Source: financialpost.com
