With no shortage of shocking headlines in the past few weeks, it’s understandable that many Canadians might’ve missed that the Trudeau government launched free trade negotiations with the world’s fifth largest economic market — one with over 270 million people and a GDP of more than $3 trillion dollars. In fact, they can even be forgiven for not knowing it by name: Mercosur.
Mercosur is the world’s fourth largest trading bloc, comprised of some of the most important economies in South America: Brazil, Argentina, Paraguay, and Uruguay. Argentina and Brazil, in particular, are high-growth markets both rich in natural resources and home to expanding middle class populations. They are so-called ‘emerging’ markets, not unlike Mexico, Nigeria, and South Africa.
With the continued uncertainty around NAFTA, and the slow pace of talks with India and China, Mercosur represents a welcome addition to Canada’s trade diversification strategy. To date, Mercosur has not signed a free trade agreement with any western economy. Interestingly, and perhaps surprisingly, it only has trade agreements in place with Israel, Egypt, Palestine, and Lebanon.
The renewed Canadian interest in Mercosur is due in large part to Argentina’s pro-business President Mauricio Macri — currently the Chair of Mercosur. Macri was elected in late 2015, shortly after Prime Minister Justin Trudeau, and moved quickly to transform a country that had effectively languished under his more erratic and controversial predecessor Cristina Fernandez de Kirchner.
Since Marci’s election, Argentina has taken steps to liberalize the economy by lifting capital controls, removing export controls on some commodities, reforming the country’s official statistics, renegotiating debt payments, and returning to the international capital markets. These steps restored the confidence of foreign investors and countries who had sidestepped Kirchner’s Argentina.
Trudeau met with Macri during a visit to Argentina back in 2016, with the goal of fostering stronger bilateral ties between both countries on trade and investment. They also forged a strong personal relationship based on many common priorities such as a commitment to global trade, supporting Syrian refugees, protecting the environment, as well as improving labour conditions.
Strengthened bilateral trade between Canada and Argentina would therefore combine value and values. For example, Argentina has one of the world’s largest deposits of lithium, a mineral that is essential to electric vehicle batteries. Where Canada is pushing for a greater adoption of electric vehicles, access to this strategic resource will be crucial for our domestic automobile producers.
Yet, President Macri’s reforms have done more than revitalize his own country, they have, by extension, helped to boost the appeal of Mercosur as a whole. Though not without its challenges, Brazil has benefited reputationally from its association with a more stable Argentina. Brazil may finally live up to its potential as a market on the rise like it’s ‘BRIC’ counterparts India and China.
Unlike with India and China, however, there’s good reason to believe that free trade negotiations with Mercosur can be concluded relatively swiftly. Both sides are keen to secure preferential access to each other, and there are no insurmountable obstacles on the horizon. The added incentive for Canada to move quickly is the opportunity to secure critical ‘first-mover’ advantage.
Of course, this is neither the first nor the only attempt by Canada to enhance hemispheric trade with key markets in Latin America. We already have free trade agreements in place with Mexico, Chile, Peru, Colombia, Panama, Honduras, and Costa Rica, and we are currently engaged in various active negotiations with Guatemala, Nicaragua, El Salvador, as well as the Dominican Republic.
Taken together, Latin American countries combine to form a potential trading market that is comparable in size and scope to the European Union. By securing preferential access to all the major economies in North, South, and Central America, Canada would put itself at an unrivaled competitive advantage relative to other developed economies — including the United States and the EU.
Allan Culham, who previously served as Canada’s Ambassador to Venezuela, El Salvador, Guatemala, and the Organization of American States, told the Canadian Press that while Latin America might be ‘terra incognito’ for many Canadians, our business leaders are well ahead of the curve having already made significant investments throughout South and Central America.
They’ve known for some time that North-South is the new East-West.
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