The article discusses Canada’s exploration of trade diversification towards Mercosur amid U.S. protectionism. Experts debate the potential benefits of a free trade agreement with the South American bloc. While there is existing trade growth, concerns arise about the practicality of such an agreement compared to other international options.
Canada is seeking to diversify its trade partners in light of increasing protectionism from the United States, with South America, specifically the Mercosur trade bloc, emerging as a potential avenue. Rambod Behboodi, an international trade lawyer, asserts that with the U.S. becoming an unpredictable partner, Canada must explore commercial relationships outside North America, especially with Mercosur, the largest trading bloc currently without an agreement with Canada.
Mercosur, which includes Argentina, Brazil, Paraguay, and Uruguay, was established in 1991 to eliminate customs duties among member states. The bloc also imposes a common external tariff averaging 11.5 percent on imports from non-member countries. As of 2024, Bolivia is set to become a full member while Venezuela’s membership is suspended due to political issues. Although Canada initiated negotiations for a free trade agreement with Mercosur in 2018, progress has been slow, as evidenced by the lengthy negotiation period the European Union experienced before finalizing its trade agreement with the bloc.
Behboodi emphasizes the urgency for Canada, as tariffs on Canadian goods can reach up to 35 percent, while the EU’s recent agreement will eliminate these tariffs over time. Without a deal, Canada risks forgoing significant economic opportunities in South America, particularly as the EU gains a competitive edge. Behboodi suggests a long-term strategy emphasizing reduced reliance on the U.S. market.
Trade statistics highlight the potential benefits; for instance, Brazilian exports to Canada grew by nine percent last year, with top exports including gold, alumina, and sugar. Hilton Nascimento from the Chamber of Commerce Brazil-Canada notes that the bilateral relationship has seen over 60 percent growth in the past decade. There are calls for concluding a trade agreement to leverage these growing ties, particularly in sectors like oil, gas, renewable energy, and IT.
However, some experts, including Fen Olser Hampson from Carleton University, express skepticism regarding the viability of a Canada-Mercosur agreement. Hampson argued that Brazil and Canada predominantly export similar goods, making meaningful trade collaboration challenging. He proposes that Canada should prioritize expanding trade with Asia and Europe instead, focusing on innovations and commodities.
Bernardo Blum, an economic policy analyst, suggests analyzing the EU-Mercosur agreement to gauge trade impacts and industry benefits. He posits that a Canada-Mercosur agreement might not yield significant benefits, referencing the Canada-EU Comprehensive Economic and Trade Agreement (CETA), which has seen only partial utilization since its implementation. Blum raises concerns that many Canadian firms may not pursue the required certification to leverage the potential benefits of a new trade agreement with Mercosur.
In summary, Canada’s pursuit of trade diversification is prompted by the rise of U.S. protectionism, turning eyes toward South America and Mercosur as a potential partner. While there are notable benefits and growth opportunities with Brazilian trade, experts express differing views on the practicality and effectiveness of a trade agreement with Mercosur. Long-term strategies emphasize the need to assess the viability of such agreements against already existing ones to truly capitalize on new markets.
Original Source: financialpost.com
