FAIT Committee Report

A TRADE AND INVESTMENT STRATEGY FOR THE AMERICAS

When the Sub-Committee on International Trade, Trade Disputes and Investment agreed to the Minister of International Trade’s request to launch an inquiry into Canada’s negotiating strategy at the World Trade Organization (WTO)¹, it also decided to concurrently examine the state of negotiations of a Free Trade Area of the Americas (FTAA)² as well as Canada’s bilateral economic ties to the Americas region.³

To examine each component of the Government of Canada’s three-pronged (bilateral, regional, multilateral) trade strategy in this way makes ample sense. All three elements are interrelated, with progress in one area directly affecting the others. For Canada’s international trade strategy to be effective, we are convinced that positive results must flow out of each component.

A number of the witnesses appearing on WTO issues were thus asked to also offer their views on the FTAA and the existing bilateral links. These Ottawa-based hearings were supplemented by a two-week fact-finding mission to Central and South America⁴, in which Sub-Committee members were able to measure the pulse of the region on both the potential free trade agreement and on the current bilateral relationship. North American travel was excluded from our itinerary by design, as it was already being undertaken by the House of Commons Standing Committee on Foreign Affairs and International Trade (the Sub-Committee’s parent committee) as part of its examination of North American integration.

Our successful fact-finding mission to Latin America has helped greatly in enabling the Sub-Committee to formulate its vision of what an effective trade and investment strategy for the Americas might look like. On the bilateral side, we were told that individual countries or regional groupings of countries were very receptive to opening free trade discussions with Canada. Strengthening bilateral relations would provide several advantages. First, free trade is in Canada’s best overall economic interest. The active pursuit of bilateral agreements should help create an awareness of Canada and the commercial opportunities that exist in both Canada and the region.

Second, there is also a potential competitive benefit for Canadian businesses and investors. By taking a leadership role in promoting free trade in the Americas, Canada can take advantage of its preferential status in those markets compared to other countries that have yet to sign bilateral agreements. The Canada-Chile free trade arrangement is the best example of this. Since its implementation five years ago, Canada has enjoyed superior access to the Chilean market than have the Americans. With each new bilateral agreement that Canada signs, it ensures itself of a competitive advantage for as long as it takes other countries to catch up. Over that period of time, Canadian firms can entrench themselves in those markets by creating knowledge, establishing linkages and making investments in that country.

Thirdly, actively pursuing bilateral trade agreements in the Americas could also have a considerable effect on the political and economic perception of Canada in Latin America and the Caribbean. In Chile, we found that Canada’s existing bilateral trade agreement had generated extraordinary goodwill towards our country. The Sub‑Committee was repeatedly told by government and business representatives that Canada was the first developed country to enter into such a relationship with Chile and that this action had been very highly regarded across the country. Similarly, the Sub‑Committee was informed that political and business leaders in Costa Rica were grateful for Canada’s efforts in entering into a trade agreement with that country (even if it has yet to be ratified in Costa Rica).

However, the Sub-Committee also learned that some people had a very poor understanding of Canada and that they frequently did not differentiate between Canada and the United States on key trade issues. For example, a Peruvian working on that country’s FTAA Commission complained about the protectionist and restrictive agricultural policies of the North. This individual was simply unaware that Canada was a leader in agricultural trade liberalization and that Canada had considerable concerns of its own with the agriculture policy of the U.S., to which the witness had really been referring.

The situation was similar in Brazil. There, a perception exists that Canada’s foreign policy is not independent of that of the Americans and that, when push came to shove, Canada would toe the U.S. line on FTAA negotiations. A more assertive and independent stance on bilateral trade negotiations could help promote awareness about Canada and address these concerns.

Fourth, achieving progress in the bilateral area can pay important long-term dividends in terms of developing the momentum required for the successful completion of FTAA negotiations and the building of hemispheric alliances in favour of free trade. As the former Costa Rican Minister of Foreign Trade told the Sub-Committee, all free trade processes will lead eventually to an FTAA. A Brazilian academic and a Colombian lawyer ventured similar thoughts, that bilateral trade agreements really help to push the FTAA agenda forward.

Moreover, the more countries that can join together in the crusade towards trade liberalization, the more (it is hoped) that countries outside this hemispheric network will be isolated and less likely to seek out protectionist action. A number of witnesses in Latin America pointed to the merits of isolating the United States in this manner.

Finally, should the FTAA negotiations result in failure, having the existing bilateral agreements in place could serve as an important insurance policy for Canada. With the North American Free Trade Agreement (NAFTA) already in place for North America, the signing of several additional key bilateral agreements with important countries and regions in the remainder of the Americas would position Canada quite well within the hemisphere.

As a key part of its efforts to strengthen economic ties with countries of the Americas and for the other reasons that we have identified, the Sub-Committee believes that Canada should actively pursue such bilateral arrangements in the region. We recommend:

Recommendation 1

That, in order to generate economic benefits for Canada, carve out a distinct Canadian identity, build momentum for the Free Trade Area of the Americas (FTAA), and serve as an insurance policy in the event of FTAA failure, the Government of Canada aggressively pursue bilateral trade and investment agreements with Latin American and Caribbean countries as well as country groupings.

Recommendation 2

That Canada form alliances with like-minded countries and regions within the hemisphere to encourage reluctant countries to become more active in economic integration efforts and to dissuade potential FTAA partners from resorting to protectionist measures.

Over the course of its hearings and travels, the Sub-Committee discovered a great deal of pessimism that an FTAA agreement would be reached by the 2005 deadline, if at all. Many witnesses pointed to a real lack of leadership on this file, both on the part of political and business leaders. Not surprisingly, the concern often centred on the roles played by the United States and Brazil.

However, Canada was also singled out as an extremely credible country that could play more of a leadership role in bringing the FTAA to fruition. Spokespersons for Brazil’s major industry group and the agricultural sector told the Sub-Committee that Canada could coordinate a common FTAA position to serve as a counterweight to that of the United States. It was also suggested that Canada could play the role of the “good brother” and attempt to exert influence on Brazil, convince Washington to open up on trade and get Latin American countries more integrated on trade. Representatives of the Canadian business community in Sao Paulo decried the lack of a public sponsor or “champion” of the free trade agreement.

The Sub-Committee is aware that ongoing negotiations in the various FTAA committees appears to be progressing well. However, leadership will be required when key negotiating decisions will have to be made. We believe that Canada should respond to the calls for expanding its role in the run-up to 2005, and recommend:

Recommendation 3

That, Canada take on a “champion” role regarding the FTAA, mobilizing political, civil society and business support to achieve a hemispheric free trade agreement by 2005.