Canada, Mercosur Eyeing Possible Trade Negotiations Launch Next Month

22 February 2018

Canada and the South American trading bloc Mercosur are reportedly expected to announce the formal launch of trade talks next month, during a meeting on 9 March between Canadian trade minister François-Philippe Champagne and his Mercosur counterparts in Asunción, Paraguay. 

“The stars are sort of aligning right now. Whether it’s auto parts, chemicals, lumber, seafood, this is actually a very attractive market,” Champagne spokesperson Joseph Pickerill told Reuters late last week. 

The Mercosur talks “make a lot of sense and right now we have got countries very, very eager to work with us,” Pickerill added. 

Mercosur, which includes Argentina, Brazil, Paraguay, and Uruguay as full members, is the world’s fourth-largest trading bloc, and the second largest in the Americas after the North American Free Trade Agreement (NAFTA). Canadian government statistics indicate that the group accounts for a combined GDP of US$2.4 trillion and a population of 260 million people. 

Canada already has significant trade with the group’s individual members, with the sum total running up to about US$8.1 billion in goods in 2016, according to government statistics. Bilateral investment flows are even higher, with outbound investment from Canada to the group hitting US$11.7 billion in 2016, while Mercosur’s investment into Canada was US$15.6 billion. 

The North American nation already has other accords with the South American bloc’s members, such as investment promotion deals with Argentina and Uruguay, both signed in the 1990s. 

A widening trade agenda

Proponents of the Canada-Mercosur accord note that the deal could both increase trade flows while also complementing and building on the plethora of regional accords springing up in the region. 

For example, Canada is one of four countries involved in talks to become an “associate member” of the Pacific Alliance, a group which includes Mexico, Colombia, Peru, and Chile. Its trade with that South American grouping is worth six times as much as what Canada trades with Mercosur, at US$38.1 billion annually. (See Bridges Weekly, 8 February 2018

Canada already has trade accords with individual members of that grouping, and is also linked to Mexico, Peru, and Chile under the 11-member Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). 

Officials from those same 11 CPTPP members are due to convene in Santiago, Chile, on 8 March to sign the updated version of their planned agreement, just ahead of the reported Asunción meeting of Canada and Mercosur. (See Bridges Weekly, 25 January 2018 and related story in this week’s edition) 

Canadian officials say that the CPTPP, the Comprehensive Economic and Trade Agreement (CETA) with the European Union, and now the Canada-Mercosur talks are all part and parcel of the country’s plans to create deeper ties with a wider coalition of trading partners. The CETA is already in force on a provisional basis. (See Bridges Weekly, 21 September 2017

“Ensuring Canada has access to diverse and growing markets is more important than ever for Canadian businesses so they can grow, continue to hire more Canadians, and help strengthen the middle class,” Champagne said in a statement this past week, highlighting these different initiatives. 

The proposed talks also come at a time when Canada’s ties with one of its top trading partners, the United States, are under strain, both due to bilateral tensions over goods such as softwood lumber, as well as in the wider context of their negotiations, together with Mexico, to update the North American Free Trade Agreement (NAFTA). (See Bridges Weekly, 15 February 2018

Meanwhile, Mercosur members have been similarly active in recent years in pursuing new trade deals. The bloc is looking to ink its own accord with the European Union, with the goal of concluding formal negotiations in the coming weeks, and is also seeking deeper ties with the Pacific Alliance and other countries and country groups. (See Bridges Weekly, 1 February 2018

In related news, Canadian Prime Minister Justin Trudeau is currently on a trip to India, where deeper trade ties were also expected to be on the agenda, including possibly the next steps for bilateral trade talks. Ottawa has also expressed interest in potentially launching trade negotiations with China, though whether and when that process will move forward remains unclear. (For more on the Canada-India meetings, see related story, this edition) 

Building on exploratory talks 

Informal meetings between Canadian and Mercosur officials received a fresh push in 2017, five years after they last met to explore the possibility of a trade agreement. The two sides held technical meetings on the subject nearly a year ago in the Argentine capital of Buenos Aires, which reportedly addressed subjects such as goods and services trade, non-tariff measures, investment, government procurement, labour, and environment. 

The Argentinian official who chaired the meeting referred to it as “highly productive,” and the meeting was followed shortly thereafter by the launch of a public consultation by Ottawa to gather views from domestic stakeholders. (See Bridges Weekly, 11 May 2017

Analysts note, however, that there are potential sensitivities on certain sectors that could re-emerge in more structured trade talks. For example, Canada and Brazil have sparred openly over aircraft subsidies, including at the WTO. Agriculture is another area of interest for both Canada and the Mercosur bloc. (See Bridges Weekly, 23 February 2017

The depth, subject area coverage, and approach to the potential trade deal are not yet clear. Analysts say that agricultural commodities and other resource industries, such as lumber, may factor into negotiations significantly, as both sides look towards greater market access opportunities. Ottawa might also interested in infrastructure and government procurement, Canadian officials told CBC, a domestic news outlet.  

ICTSD reporting; “Canada seeks Mercosur free trade deal amid NAFTA uncertainty,” REUTERS, 16 February 2018; “Brazil beef scandal leaves fewer options for global buyers,” REUTERS, 21 March 2017; “Canada set to open free trade talks with South American bloc,” CBC NEWS, 15 February 2018; “Canadian and Indian companies ink deals worth $1B during Trudeau's trade trip,” CBC NEWS, 20 February 2018.

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