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CHAPTER 1:
CANADA-AMERICAS FOREIGN AND TRADE RELATIONS
There has been a significant change [...] in Canadian attitudes towards
the hemisphere. Many more Canadians are now travelling more than ever in
the region than in the past. Spanish is the foreign language most in demand
in Canadian universities [...] [P]eople-to-people contacts have been growing
exponentially. In a very real way, [...] this hemisphere has become our
region. We are feeling much more at home here than [...] in the past. [George
Haynal, 25:1540]
History of our Relations with the Americas
Canada's relationship with the United States is already widely known
and well understood - so much so that the Committee need not go into much
detail here. By way of a summary, however, our common Anglo-Saxon history
and proximity to each other mean that we share the English language, similar
traditions, cultures and institutions. This closeness has resulted in,
and enables us to boast of, partaking in the longest undefended border
of the world; we trade more with each other than do any two other countries
of the world (two-way trade amounting to US$309.3 billion in 1997); we
invest more in each other's country than do any two other countries of
the world (cross-border direct investment holdings of more than $273.4
billion in 1998); and, finally, Americans hold the most, while Canadians
hold the second most, number of work visas or temporary work permits issued
by the other country of any nationality. In summary, Canada and the United
States are the most integrated national economies of the world.
The Committee feels compelled to provide something more than a statistical
overview of our relations with Latin America and the Caribbean, which are
not widely known. While formal relations between Canada and Latin America
at this time are both cordial and relatively formative, Canada's relations
with the Caribbean are more developed - neighbourly and longstanding. Canada
has enjoyed considerable trade with the Caribbean, particularly with those
nations belonging to the British Commonwealth, dating back to our colonial
days. These relations have grown to include the establishment of religious
missions (Presbyterian Church of Canada); close banking relations as early
as upon this country's confederation; and extensive tourist relations,
including the construction and financing of tourist resorts, and immigration
and educational transfers to Canada beginning in the 1950s.
More specifically, Atlantic Canada took part in what has become to be
known in early Canadian history as the triangular trade between Great Britain,
British North America and the British West Indies. This trade featured
Canadian exports of fish, lumber and other staples to both Commonwealth
sites in return for, amongst other goods, sugar, molasses and rum from
the West Indies throughout the eighteenth and nineteenth centuries. Indeed,
this trade was subject to one of our very first disputes with the United
States, relating to whether or not its carriage should be reserved for
British and colonial shipping. At that time, British and colonial monopoly
over two of the three legs of this trade was being leveraged to obtain
a monopoly over the third (between North America and the West Indies) by
denying American access to British West Indies ports. The Americans, in
turn, imposed retaliatory duties on the cargos of British vessels arriving
from these very same ports. The end result, after 12 years of tit-for-tat
retaliatory actions, was the repeal of all such legislation in 1830 and
the establishment of free trade in shipping. A fitting result in view of
what the hemisphere is now contemplating.
Since these early days, Canada has extended preferential access to its
markets for selective Caribbean exports. In 1898, Canada reduced its tariffs
by 25% on a number of products, including raw and refined sugar, but in
several subsequent conferences the preferential rate was increased to 33.33%
and the list of products receiving preferential treatment was also expanded.
These efforts eventually culminated in the CARIBCAN, which since 1986 has
provided tariff-free access on a very broad range of goods from the Caribbean,
including agricultural products (but not supply management products, textiles,
clothing, leather garments, footwear, lubricating oils ¯ i.e. products
that would effectively compete with import-sensitive domestic production).
The Canadian International Development Agency and Canada's presence on
multilateral fora, such as the Caribbean Development Bank and the Inter-American
Development Bank, along with our financial contributions also form part
of our longstanding economic relations with the Caribbean.
Canada's relations with Latin America, on the other hand, are not so
extensive (both in breadth and depth) and can at best be described as having
been a low priority - at worst as much neglected - until the 1990s; after
which, the opposite is more true. Since the 1960s, the Quebec, Alberta
and Ontario governments have established a number of bureaus in Latin America
in support of their commercial relations. Indeed, the Quebec government
has gone much further in extending these relations to include political,
social and cultural dimensions. Cultural ties between "Latin Quebec"
and "Hispanic America" include four Quebec offices in the region
and numerous inter-governmental agreements and programs that embrace scientific
and inter-university cooperation. Quebec has, therefore, been successful
in attracting students from Latin America to study its province's universities.
However, the most significant catalyst for commercial engagement was
the end of the cold war between East and West, which saw Canada shift its
policy attention from national security to international economic issues,
most notably trade. One of the first decisions Canada made at this time
was to join the Organization of American States (OAS), a post-World War
II institution created in 1948. From its inception until Canada joined
in 1990, the OAS had largely been dormant on important hemispheric policy
issues as Latin American tradition would not have any supra-national institution
infringe on what was considered matters of national sovereignty. But this
was about to change.
As reported by the House of Commons Standing Committee on External Affairs
and National Defence in 1982, this Committee's forerunner, if made effective,
the OAS could become an indispensible regional organization for hemispheric
policy formulation and coordination.1
It could also serve as an important instrument of Canadian foreign and
trade policy with Latin America. Accordingly, Canada's move from observer
to full member status, at a time when Latin American countries were, in
general, reforming their trade policies from protective import-substitution
to free trade and customs union strategies, saw the OAS emerge as an important
source of political governance in the region - much as it was originally
designed.
Canada made its presence known from the very start and, in effect, breathed
new life into the OAS by leading the efforts for the establishment of the
Unit for the Promotion of Democracy (UPD), which has been assigned the
tasks of monitoring elections and strengthening democratic institutions
and principles. The UPD, at last count, had been called on four times this
decade (Haiti, Peru, Guatemala and Paraguay) to help resolve tense situations
that, when using the recent past as a guide, had the potential to erupt
into political and, possibly, military crises. This development can now
with perfect hindsight be seen as a necessary precursor for the OAS to
embark upon its current Summit of the Americas agenda that provides for,
and improves upon, hemispheric governance, including its ambitious free
trade initiative.
Furthermore, since the 1990s, Canadian companies have made significant
investments in Latin American business ventures. Most notably, Canadian
mining companies, such as Falconbridge, Placer Dome, Rio Algom, Cominco,
Teck Corp. and Barick Gold Corp., have investments either underway or planned
totalling more than US$7 billion in Chile. Beyond exploration activities
(for copper and gold), these Canadian companies' production facilities
are reported by the National Mining Society of Chile (SONAMI) to account
for more than 40% of Chilean exports of mineral and metal products.
Canadian Trade and Investment with the Americas
Canada's trade in goods and services with the Americas is critical to
its standard of living, amounting to US$322.3 billion in 1997 and representing
more than 79% of our total trade with the world. However, most of this
trade is with the United States (US$309.3 billion) as Canada's trade with
Latin America and the Caribbean, totalling US$13 billion in 1997 and representing
only 3.2% of our aggregate trade with the world (see Table 1.1), is modest
at best. It is, nonetheless, growing at a tremendous pace. Since 1991,
Canada's trade in goods and services with Latin America and the Caribbean
has grown by 88.6% or, on average, by 9.5% per annum - faster than trade
with the United States, (81.3%), where there has been a free trade agreement
in force for more than a decade. The most significant Latin American and
Caribbean markets for Canadian exports are Brazil (US$1 billion), Mexico
(US$916 million) and Venezuela (US$621 million). In turn, Canada is a significant
market for the exports of Mexico (US$5 billion), Brazil (US$940 million)
and Venezuela (US$701 million).
Foreign direct investment (FDI) between Canada and the Americas is also
substantial. In terms of stocks abroad, Canada had investments in the Americas
amounting to $169.5 billion in 1997, representing more than 70% of its
total outward FDI ($239.8 billion). While the United States again dominates
this relationship, Latin America and the Caribbean were the destination
for $43.5 billion of these investments, accounting for a 18.2% share. More
specifically, Barbados ($14.3 billion), The Bahamas ($6.1 billion) and
Bermuda ($4.7 billion) are ranked third, fifth and sixth, respectively,
amongst Canada's largest recipient countries of FDI.
Canada also depends on considerable FDI from the Americas, amounting
to $150.6 billion and representing about 70% of a total of $217.1 billion
invested from abroad in Canada. The United States accounts for the lion's
share, $147.3 billion, while Latin American and Caribbean investments of
$3.2 billion amount to only a 1.5% share.
Trade and investment between Canada and the Americas is largely supported
by bilateral trade and investment protection agreements. Canada is party
to three free trade agreements with selective countries of the region:
the Canada-United States Free Trade Agreement since 1988, the North American
Free Trade Agreement (NAFTA) since 1994, which includes the United States
and Mexico, and the Canada-Chile Free Trade Agreement (CCFTA) since 1997.
Canada has also, since 1998, signed two non-legally binding Trade and Investment
Cooperation Arrangements (TICAs) with the MERCOSUR and the Andean Community,
as well as a Memorandum of Understanding on Trade and Investment (MOUTI)
with Costa Rica, El Salvador, Guatemala, Honduras and Nicaragua. Finally,
Canada has signed 8 reciprocal foreign investment protection agreements
(FIPAs) with countries within the Americas region, not including the investment
chapter of the NAFTA and the CCFTA, and is in various stages of negotiating
13 other reciprocal FIPAs (see Exhibit 1.1). FIPAs, or bilateral investment
treaties (BITs) as they are called elsewhere, are designed to promote foreign
investment through lowering the political risks undertaken by foreign investors.
FIPAs extend, among other things, national treatment status to foreign
investors in the host country, eliminate capital restrictions and profit
remittances requirements, and provide for the arbitration of disputes.
1 Final
Report of the Standing Committee on External Affairs and National Defence,
Canada's Relations with Latin America and the Caribbean, 78:21.