FAIT Committee Report
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A. Overview Of The Existing Links The Americas represent Canada’s most important trade market. The U.S. is by far Canada’s largest trade partner, while the enormous economic promise in emerging countries in Latin America and the Caribbean offers significant long-term growth potential elsewhere in the hemisphere. In recognition of the economic opportunities in the Americas, Canada has actively pursued a policy of removing the obstacles to doing business in that region of the world and opening those markets to Canadian investors and entrepreneurs. One of the key aspects of Canada’s policy towards improving pan-American economic ties has been to work towards removing existing barriers to trade. To that end, Canada has signed a number of trade agreements with other countries in the Americas. These include the NAFTA5 implemented in 1994, as well as bilateral trade agreements with Chile and most recently with Costa Rica. Negotiations are ongoing on several other free trade initiatives as well. Progress to date on lowering of tariff barriers and eliminating other non-tariff measures through trade agreements has greatly enhanced Canada’s trading relationship in the Americas. Led by the continuing integration of the Canadian and U.S. markets, 89% of Canada’s total merchandise exports are now destined for markets in the Americas while 69% of Canadian imports are purchased from that region of the world. Bilateral trade between Canada and other states in the Americas has expanded by 192% since 1991, rising from a value of $204 billion that year to over $595 billion in 2001.6 This tremendous growth in trade has been facilitated by the rapid expansion of Canadian foreign direct investment (FDI) in that region of the world. Outward investment by Canadian firms has been shown to not only generate domestic economic expansion, but also to stimulate export growth as well. A significant proportion of international trade takes place between parent firms and their foreign subsidiaries. By making it easier for firms to invest abroad, potential trade linkages are forged, and a market for export goods and services is created. Studies have shown that each dollar in outward FDI is linked to two dollars in export growth.7 Canada’s experience supports the claim that export growth is led by foreign investment. Canada’s stock of direct investment flows into its five most significant American trade markets (the U.S., Mexico, Brazil, Chile and Venezuela) grew by 153% from 1991 to 2000, reaching a total of over $166 billion in 2000. Recognizing the importance of promoting economic growth and trade through increased investment, Canada has moved to lower barriers to investing across the Americas, either through integrated trade agreements (such as the NAFTA) or bilateral Foreign Investment Protection and Promotion Agreements (FIPAs). Since 1996, Canada has signed FIPAs with a number of countries, including Barbados, Venezuela, Trinidad, and Tobago, Ecuador, Panama, Uruguay, Costa Rica and El Salvador. Canada has closer economic ties with the Unites States than with any other country in the world. A common language, related history and long, undefended border with the world’s largest economy have contributed to growing integration between the two countries and a Canadian economy that increasingly is oriented north-south rather than east-west. The focus in Canada on market opportunities in the U.S. has been aided by the Canada-U.S. Free Trade Agreement (CUSFTA). Canadian exports to the U.S. have more than tripled since the agreement was signed in 1989 and imports from the U.S. in 2001 were over two-and-a-half times their 1989 levels. The U.S. now accounts for about 87% of Canada’s total exports and about 64% of total imports. The U.S. is also the largest destination for Canadian FDI. Estimates suggest that in 2001, Canadian investments in the U.S. were valued at just under $200 billion, compared to less than $57 billion in 1989. Outside of the U.S., Canada has closer economic ties with Mexico than with any other country in Latin America or the Caribbean. Mexico is Canada’s sixth-largest export destination and fourth-largest source of imports worldwide. In 2001, bilateral trade between the two countries totalled $14.6 billion, accounting for 57% of Canada’s trade in the Americas, excluding the U.S. The NAFTA has played a major role in developing these economic linkages, contributing to a surge in trade between Mexico and Canada. Canadian exports to Mexico have grown by an average rate of 14.6% per year from 1993 to 2001, compared to an average of 3.8% for all other countries outside the NAFTA agreement. Growth in imports of Mexican goods has been even more impressive. Imports have averaged 15.9% growth every year since 1993, well ahead of the 10.0% pace registered by non-NAFTA countries over that period. This explosion of trade has been aided by a similar surge in outflows of Canadian FDI to Mexico. Canadian investments in Mexico have increased by over 650% since 1993, rising from $530 million that year to $4.0 billion in 2001. 3. South And Central America And The Caribbean While Mexico dominates its trade portfolio within Latin America and the Caribbean, Canada has also seen a rapid expansion in its economic relationship with countries in South and Central America, as well as with the Caribbean. In part a result of its bilateral free trade agreements (FTAs) and FIPAs in the region, Canadian investment in non‑NAFTA countries of the Americas has soared since 1990 and trade has followed suit. Indeed, Canada has seen faster growth in exports with these countries over the 1990s than with any other region of the world (See Chart 1). This strong growth, particularly in the case of South America, came despite the effects of the Asian Crisis in the late 1990s. Canada’s trade with South America had been exploding through the 1990s, averaging 18.4% growth annually from 1991 to 1997. This came to an abrupt halt in 1998, however, as turmoil in the Asian financial sector plunged several countries in the region into recession, including Brazil, Venezuela and
Source: Statistics Canada, Library of Parliament On the other hand, Canada’s trading relationship with Central America and the Caribbean emerged from the crisis relatively unscathed. Indeed, even in 2001, when Canada’s trade across the world was stagnant or falling, its trade with Central America and the Caribbean continued to do well. Exports to that region were 6.7% higher compared to a year earlier. Similarly, imports were 9.4% higher in 2001 than in 2000. Although Canada’s bilateral trade in the Americas (outside of the U.S. and Mexico) is growing quickly, it remains relatively small. Canada exchanged $8.0 billion worth of goods with South American countries in 2001 and $2.9 billion in Central America and the Caribbean that year. Together, those regions accounted for 7.1% of Canada’s global trade outside of the NAFTA countries. A detailed profile of Canada’s trading relationship with individual countries in the Americas can be found in Appendix A. It bears mentioning, however, that much of Canada’s trade with Latin America and the Caribbean passes in transit through the United States. Because of associated measurement problems, Canada’s trade figures with that region are likely understated. The reliability of trade statistics is covered in a subsequent section of the report. (a) Major Countries And Regions The desire within Latin America and the Caribbean to take advantage of trade liberalization, as well as economic and social integration, has led to the emergence of a number of regional groupings of like-minded countries in that part of the world. The most significant of these, in terms of size and economic strength, are the Andean Community, the Southern Cone Common Market (Mercosur), and the Carribean Community and Common Market (CARICOM) countries. Twenty-five countries in Latin America and the Caribbean are members of, or have some association with, these three regional blocs. The Andean Community is a common market dedicated to economic and social integration across its member countries. It is comprised of five countries in the north-west of South America — Colombia, Peru, Venezuela, Ecuador and Bolivia. The Andean Community is a significant economic presence in South America. Generously endowed with natural resources, the region is home to 105 million people and contributes over $286 billion to global economic output.
The region has worked to liberalize trade both in its internal as well as external markets. The Andean Community became a free trade zone in 1993 and adopted a common external tariff (CET) in 1995. The average tariff on goods entering the region was 13.6% in 1998, down from 33% in 1989. Canada’s trade linkages with the Andean Community are stronger than with any other regional grouping in Latin America and the Caribbean. Bilateral trade in 2001 reached a record $3.7 billion, overcoming the declines in trade in the late 1990s. Trade between Canada and the Andean countries has grown by 127% since 1990. Of Canada’s ten largest trading partners in the Americas, aside from its NAFTA partners, four are from the Andean Community — Venezuela, Colombia, Peru and Ecuador. Venezuela is the largest and fastest-growing of these, and is also Canada’s second-largest trading partner in the hemisphere, south of Mexico. Bilateral trade between Canada and Venezuela totalled $2.1 billion in 2001, $792 million in Canadian exports and $1.4 billion in imports. Colombia is Canada’s next-largest trading partner in the Andean Community and fourth-largest in the Americas (outside of the U.S. and Mexico). The two countries exchanged $772 million in goods in 2001. Of that total, Canada exported $357 million and imported $415 million. Bilateral trade with Peru totalled $441 million in 2001 and that with Ecuador $269 million. Canadian FDI in the Andean region has seen tremendous growth throughout the 1990s, reaching $3.6 billion in 2001, compared to $78 million in 1990. Over 60% of this investment in 2001 was in Peru, led by mining and resource industries. While Canadian investment in the Andean Community has risen considerably, it remains relatively low compared to the Mercosur and the CARICOM countries, however. This can be attributed, at least in part, to the fact that Canada does not have a wide network of investment agreements with Andean countries. Canada has signed FIPAs with Venezuela and Ecuador, but not with Colombia, Peru or Bolivia. Canada and the Andean Community did, however, sign a Trade and Investment Cooperation Arrangement (TICA) on May 31, 1999. The TICA establishes the framework for pursuing stronger commercial and economic cooperation between Canada and the region, but is considered to be a relatively weak agreement. The Southern Cone Common Market (Mercosur) was established in 1991 and is comprised of Argentina, Brazil, Paraguay and Uruguay. Mercosur is the largest economic market in Latin America and the Caribbean. Its four member countries are home to 217 million people and its combined GDP is about $1.5 trillion, nearly equivalent to that of India — the fifth-largest economy in the world.
Mercosur is working towards the free circulation of goods, services, capital and labour across the four countries, as well as a common external tariff (CET) and the harmonization of macroeconomic and sectoral policies. This process is underway and expected to be completed by 2006. However, economic and political complications in Brazil in the late 1990s and ongoing turmoil in Argentina are creating some internal division within the grouping. Canada’s bilateral trade with Mercosur grew tremendously through the early and mid-1990s, rising from $1.6 billion in 1990 to $3.8 billion by 1997. This growth was arrested in 1998 when the Asian economic crisis spilled into the region, particularly into Brazil — Canada’s largest trading partner in the hemisphere, aside from the U.S. and Mexico. Canadian exports to Brazil, as well as to Argentina, have dropped precipitously since 1997. As a result, bilateral trade between Canada and Mercosur has fallen by close to 18% in the past four years. Despite the recent and ongoing economic turmoil in the region and its effect on Canadian exports, Mercosur, and Brazil in particular, remains a significant trading market for Canada. Bilateral trade with Brazil totalled $2.4 billion in 2001, with Canadian exports to Brazil accounting for $914 million of the total and imports from Brazil adding the remaining $1.5 billion. Prior to 1997, Canada carried a trade surplus with Brazil. Mercosur is a major destination for Canadian FDI in the Americas. In 2001, Canadians held $11.1 billion in investments in Brazil and Argentina, up from $1.8 billion in 1990. FDI is evenly divided between those two countries8 and is concentrated in the energy, mining and telecommunications sectors. Canada has signed FIPAs with Argentina and Uruguay, but not with Brazil or Paraguay. Canada and Mercosur signed a Trade and Investment Cooperation Arrangement (TICA) in 1998, laying the groundwork for improved bilateral trade and investment ties. It also established a framework for collaboration at the FTAA negotiations, the WTO and the Cairns group. The Caribbean Community and Common Market (CARICOM) consists of fourteen Caribbean countries, plus the Bahamas which is part of the Caribbean Community but not the Common Market. In early 2001, Canada and the CARICOM initiated preliminary discussions on a framework for negotiating a Canada-CARICOM free trade agreement. These discussions are expected to continue through 2002.
Canada’s trade with the CARICOM countries is relatively small compared to that with the Andean and Mercosur groupings, but has outpaced both in terms of growth. Bilateral trade totalled $1.2 billion in 2001, up 133% from the $521 million registered in 1990. Jamaica is Canada’s largest individual trading partner in the region, at $420 million in 2001, but Trinidad and Tobago is among the fastest-growing. Trade with that country has risen by 321% since 1990 to reach $370 million in 2001. While Canadian trade in the CARICOM countries is modest, the Caribbean region is a major destination for Canadian FDI. In particular, Barbados attracted $23.3 billion in total Canadian investment in 2001, second in the Americas to the United States. Other countries in the Americas are not formally part of regional clusters but are nevertheless significant markets for Canada. Chief among them is Chile, which is an associate member of the Mercosur group, but maintains a significantly lower tariff structure than do the Mercosur countries. The average import tariff in Chile is 7% in 2002, falling to 6% by 2003, compared to Mercosur’s average CET of 14%. This gap makes it unlikely that Chile will formally join the Mercosur bloc in the near future. Thanks, in part, to the bilateral free trade agreement signed in 1997 by Canada and Chile, the latter is among Canada’s fastest-growing major trading partners in the Americas. Since that time, two-way trade has grown by 39.1%, reaching $999 million in 2001. Although Canadian exports fell in 2001, growth in imports from Chile has been exceptionally strong. Canada’s fifth-largest trading partner in Latin America and the Caribbean is the one country in the hemisphere explicitly excluded from FTAA negotiations. Canada and Cuba exchanged $753 million in goods in 2001, making it easily Canada’s largest trade partner in Central America and the Caribbean. Cuba has also been one of Canada’s fastest-growing export markets in the Americas. Bilateral trade between the two countries grew by 162% from 1991 to 2001. While the economic slowdown in 2001 dampened Canada’s export growth to most other countries, trade with Cuba continued to be strong. In 2001, exports to Cuba were 17.8% higher than in 2000.
Source: Statistics Canada, Library of Parliament Following the signing of the Canada-Costa Rica Free Trade Agreement in April 2001, Canada opened free trade negotiations later that year with El Salvador, Guatemala, Honduras and Nicaragua. These Central American Four (CA-4) countries are negotiating as a group, but not as part of a formal organization. Concluding these negotiations in 2002 is a market access priority for Canada. Current economic linkages between Canada and four countries in Central America (CA-4), namely Guatemala, Salvador, Honduras and Nicaragua, are relatively small, but have been growing quickly. Bilateral trade between Canada and the CA-4 was worth $526 million in 2001, down from $620 million a year earlier, but well above the $200 million level of 1990. Guatemala is Canada’s largest bilateral trading partner in the CA-4, accounting for half of the total in 2001. Trade between the two countries has risen from $66 million in 1990 to $263 million in 2001. Canada currently has little investment in the region. Canada’s major exports to Latin America and the Caribbean vary considerably from country to country (see Appendix A) and cover a wide range of goods. In general, Canada’s largest export product is wheat, which at a value of $672 million in 2001, accounts for close to 16% of its total exports to the region. Other major export commodities include newsprint and other paper products, chemicals, aircraft, motor vehicle parts, prepared foods, electrical products and machinery and related parts. Imports into Canada are more heavily concentrated in commodity-based goods. Valued at over $1.3 billion in 2001, Canada’s largest import products that year were crude and refined oils, much of it from Venezuela. Raw minerals and mineral products, including gold, were also significant imports, along with coffee, raw sugar, clothing, fresh fruit and some motor vehicle products.
Source: Statistics Canada, Library of Parliament (c) Note On The Reliability of Trade Statistics Over the course of its travels through South and Central America, the Sub‑Committee encountered several instances where the information with wich it was provided on trade and investment figures, in advance of the trip, was found to be dramatically different from that which was presented by government officials and business leaders within the region. For example, the Sub-Committee frequently heard countries raise concerns that they held large trade deficits with Canada, when Statistics Canada data showed precisely the opposite. In many cases, the Sub-Committee was told that the differences were the result of the transhipment of goods through the United States en route to their final destination. However, there was no way of compensating for differences in measurement, definition and rules of origin across different data sources. The Department of Foreign Affairs and International Trade acknowledges that merchandise trade statistics produced by countries frequently differ from those published by their trading partners and that these differences reflect legitimate conceptual differences, as well as possible errors. We recognise that data reconciliation is an ongoing challenge faced by statistical agencies. However, the Sub-Committee believes that discussions on the costs and benefits of trade liberalization, as well as meaningful analysis of the opportunities and challenges in international business is seriously compromised by the lack of reliable, consistent data. Canada is currently addressing this issue with Mexico, but more needs to be done to create a widely-accepted and trustworthy measure of Canada’s trading relationship with other countries. We therefore recommend: Recommendation 4 That the federal government work in conjunction with other countries to harmonize statistical methodologies in the collection of international trade data. B. Increasing Formal Economic Linkages With The Americas Given the rapid growth in trade and investment between Canada and countries in South/Central America and the Caribbean, and considering the positive experience of increasing economic ties with Mexico, the Sub-Committee wholeheartedly supports further developing Canada’s economic linkages with Latin America and the Caribbean. Expanding the range and number of bilateral agreements with the region can offer significant potential to Canadian investors, businesses and consumers. While acknowledging that no region of the world rivals Canada’s trade relationship with its NAFTA partners, the Sub-Committee holds Canada’s experience in the NAFTA as an example of the potential benefit, in terms of trade growth, to be gained from increasing economic ties with like-minded countries. Canadian exports to the U.S. and Mexico have grown by 134% since 1993, reaching $354 billion by 2001. Imports have also nearly doubled since 1993, totalling $231 billion in 2001. The NAFTA, and the Canada-U.S. Free Trade Agreement before it, have had a remarkable effect on the Canadian economy. By increasing its export orientation, the Canadian economy has enjoyed strong GDP growth and the creation of over 2.2 million jobs from 1993 to 2001. As a result of this healthy record of job creation, the national unemployment rate in 2000 fell to its lowest level in at least 25 years. While Canada has clearly benefited from NAFTA, the Sub-Committee notes that the largest beneficiary to date has been Mexico. This result is not unexpected given that most market access concessions tend to favour developing countries. Goods commonly associated with developing countries tend to face much higher barriers to trade than those typically produced in the developed world. Following the Mexican currency crisis in 1995, an influx of Canadian and U.S. FDI into Mexico has since contributed to tremendous growth in trade in that country, which in turn has played a role in the rapid growth of the Mexican economy. Real annual GDP growth in Mexico averaged 5.5% from 1995 to 2000, compared to 4.0% in Canada and 3.9% in the US. In terms of boosting trade and investment flows across member countries, the NAFTA has been an unequivocal success. However, the tremendous growth in trade and the resulting integration of the North American economies has begun to create some challenges for businesses in the region. In essence, signs indicate that the NAFTA is becoming a victim of its own success. The volume of trade between Canada and the U.S. in particular, has exceeded the capacity of the existing border arrangement to handle the resulting traffic. Calling attention to this issue, in his testimony of February 5, 2002, Michael Hart (Simon Reisman Chair in Trade Policy, Norman Paterson School of International Affairs, Carleton University) alerted the Standing Committee on Foreign Affairs and International Trade (SCFAIT) to a study he co-authored with his colleague Bill Dymond (Executive Director, Centre for Trade Policy and Law) that discusses the growing level of integration of the Canadian and U.S. economies and the resulting challenges. In this report, Hart and Dymond include a list of issues that would have to be addressed in order to create a more open, seamless border, one that more accurately reflects the reality of the economic relationship between Canada and the U.S. The main issues highlighted in the study9 were the following:
The U.S. and Mexico account for over 98% of Canada’s hemispheric two-way trade — 99% of exports and 97% of imports. Given the extent to which the U.S. and Mexico dominate Canada’s trade portfolio in the Americas, the Sub-Committee believes that in pursuing further trade liberalization and economic integration across the hemisphere, the federal government should not lose sight of the critical role played by Canada’s NAFTA partners. As such, although the Sub-Committee is convinced of the value of pursuing greater trade liberalization with other countries in the Americas, it also recognises that impediments to trade with its NAFTA partners could have a significant economic cost for Canadians. The Sub-Committee therefore recommends: Recommendation 5 That, given the relative importance of the United States and Mexican markets to Canadian business, the Government of Canada actively seek to remove existing impediments to trade and investment between Canada and its NAFTA partners. The government should ensure that its regulations and policies governing trade are appropriate to the level of economic integration that already exists between the three countries. Over the past eight years, the NAFTA has demonstrated its effectiveness, not only in increasing trade and investment flows across member countries, but, as the case of Mexico shows, in promoting economic growth in developing countries as well. The Sub‑Committee believes that, to the extent possible, Canada should continue to reflect on the positive experience of the NAFTA in any further negotiations on liberalizing its trade across the Americas. However, the Sub-Committee also acknowledges that the NAFTA is not without its shortcomings. The Sub-Committee was reminded of these challenges during its travels and Ottawa hearings. While countries were eager to explore new bilateral ties with Canada, they also indicated an unwillingness to consider any agreement that included investment-protection provisions modelled after the NAFTA. In light of recent U.S. protectionist actions, they were also troubled by the use of anti-dumping and countervailing duty provisions. The Sub-Committee heard concern expressed in Brazil that incorporating NAFTA‑style investor-state provisions could have a considerable effect on the provision of government services in that country. Similar discomfort was voiced in Chile, where the Canada-Chile FTA already contains investor-state provisions modelled after the NAFTA. While visiting the country, the Sub-Committee was informed by government officials that Chile is seeking to renegotiate this element of the agreement. Furthermore, the Sub‑Committee learned that Chile has made a similar request with regard to its FTA with Mexico and that it will explicitly avoid any such provisions in its current free trade negotiations with the U.S. Recent U.S anti-dumping and countervailing duty actions on steel and softwood lumber imports also raised concerns about the appropriate use, or even the validity, of these trade remedies. In Brazil, the Sub-Committee heard a number of government officials and business groups express their opposition to these protectionist measures. Fearing that anti-dumping and countervail provisions could be used to limit access to U.S markets, several witnesses called for these remedies to be abolished or at least heavily modified in subsequent free trade agreements. This view was echoed in Chile and Peru. In Chile, government officials told the Sub-Committee that dumping was illogical in a true free trade zone, because all countries are part of the same market. Furthermore, while Chile has been successful in the past in defending itself against anti-dumping charges, officials raised concerns that this was a costly, difficult and time-consuming process, one that was especially challenging for developing countries with limited resources. A final NAFTA shortcoming to highlight was brought to the attention of Sub‑Committee members by Robert Pilon (Executive Vice-President, Coalition for Cultural Diversity). He argued that while the cultural exemption contained in that agreement was acceptable, NAFTA also regrettably contained a reprisal clause that enables NAFTA members to respond to actions designed to protect cultural industries with measures of equivalent commercial effect. Mr. Pilon pointed to the bilateral free trade agreements with Chile and Costa Rica that embodied a true cultural exemption clause and were, therefore, wonderful models for future negotiations. He did note that it was the Government of Canada’s intention to seek a cultural exemption based on that contained in the Canada-Chile Free Trade Agreement. The Sub-Committee believes that Canada’s ongoing pursuit of trade liberalization and economic integration with other countries in the Americas provides an opportunity for Canada to reinforce the positive aspects of its existing free trade agreements, particularly the NAFTA, while at the same time, providing an opportunity to improve upon some of the less successful aspects of those models, such as the provisions on investment protection and anti-dumping and countervailing duties. We recommend: Recommendation 6 That, when negotiating future trade agreements, the federal government bear in mind the need to improve upon certain provisions of the NAFTA, such as those identified in the body of this report. Increasing the number and scope of Canada’s bilateral agreements in the region is an important step towards enhancing Canada’s economic linkages with Latin America and the Caribbean. Although Canada’s trade with the Americas is relatively small outside of the NAFTA countries, the Sub-Committee believes that Latin America and the Caribbean region hold enormous potential for Canadian trade and investment. Countries with which Canada has signed bilateral trade and investment agreements were generally positive about the results. In addition, the Sub-Committee found that countries where formal bilateral ties were not as pronounced were typically very eager to improve these linkages. (a) Double-Taxation Agreements And FIPAs The most basic step towards improving Canada’s linkages into Latin America and the Caribbean is to create an enabling environment for foreign investment. Specifically, there are a number of countries in the Americas with whom Canada has not signed double-taxation agreements. Double‑taxation agreements harmonize the tax policies in signatory countries to prevent businesses located in one country but with operations in the other from being taxed in both jurisdictions. By eliminating this obstacle to investment, Canada can make it easier for Canadian companies to pursue investment opportunities in the region. Another step along the same path would be to expand Canada’s list of countries with which it shares Foreign Investment Protection and Promotion Agreements (FIPA). While issues of investment protection are typically included in free trade agreements, the Sub-Committee believes that the expedient conclusion of current negotiations on double‑taxation agreements and FIPAs will be of immediate benefit to Canadian businesses and help build momentum towards future trade liberalization agreements. We recommend: Recommendation 7 That, as a preliminary step in enhancing its bilateral relationship with countries in Latin America and the Caribbean, the Government of Canada accelerate its efforts to complete ongoing negotiations with individual countries on Foreign Investment Protection and Promotion Agreements (FIPA) and double‑taxation agreements. (b) Ongoing Free Trade Negotiations While FIPAs and double-taxation agreements represent a step towards establishing tighter economic linkages into the Americas, Canada’s ultimate goal in improving bilateral ties in Latin America and the Caribbean should be to establish a network of free trade agreements in the region. To that end, Canada has already signed FTAs with Chile and Costa Rica and is currently in negotiations with the CA-4 and the CARICOM group. In general, the Sub-Committee found widespread support for its completed free trade agreements in Costa Rica and Chile. This support came not only from within governments and business groups, but also from labour unions and non-government organizations. However, a small but vocal public resistance to these agreements is present as well. In Costa Rica in particular, political complications have delayed the ratification of Canada’s free trade agreement with that country. The concerns in Costa Rica centre around its small number of potato farmers who are concerned about the market access granted to Canadian producers of French fries and the implications for their industry. The Sub-Committee heard that this became a significant issue in the recent elections in Costa Rica and that as a result of the farmers’ lobby and growing public concern, the political and economic leadership needed to ratify the agreement may not exist. It was suggested that much of the opposition to trade agreements was the result of a lack of knowledge about the overall benefits of trade liberalization. Representatives from the Chamber of Industry in Costa Rica maintained that the resistance to the Canada-Costa Rica Free Trade Agreement was due to inadequate information in that country on Costa Rica’s economic strengths. Similarly, there was little information about which domestic industries would be most likely to face damaging import competition and which would benefit from enhanced market access. Despite this opposition, the Sub-Committee believes that Canada should continue to pursue its ongoing trade liberalization discussions and expand its bilateral presence in Latin America and the Caribbean. To that end, it applauds the negotiations currently underway with the CA-4 countries and the preliminary discussions with the CARICOM group. On a cautionary note, in seeking new bilateral trade deals in the region, Canada should actively promote awareness in those countries about the potential impact any negotiated agreements may have. In this way, misunderstandings or unwarranted fears can be assuaged. The Sub-Committee recommends: Recommendation 8 That, in an effort to advance its goal of trade liberalization and economic integration in the Americas, the Government of Canada energetically pursue its ongoing bilateral free trade negotiations with the CA-4 countries and its preliminary discussions with the CARICOM group. In light of the political opposition in Costa Rica to the Canada‑Costa Rica FTA, Canada should also make an effort to promote its trade accords within the participating countries to ensure that the public is well informed about the benefits of those agreements. (c) New Free Trade Negotiations A key element of forging tighter economic linkages into Latin America and the Caribbean is pursuing new opportunities to promote liberalized trade. The Sub‑Committee views South America as a market which presents extraordinary opportunities for Canadians and points to the fact that Chile is the only country on the continent with which Canada has signed a free trade agreement. The Sub-Committee feels that Canada should open the door for new bilateral negotiations with other South American countries. Most countries in South America are members of either Mercosur or the Andean Community. Because of the Common External Tariffs in each of these groups, Canada is currently unable to negotiate an agreement with individual countries without those nations violating their existing regional commitments. As it stands today, for the purposes of negotiating free trade agreements, Canada would have to consider Mercosur and the Andean Community as individual entities and negotiate bilateral treaties accordingly. The Andean Community in particular is open to the possibility of a trade deal with Canada. The Sub-Committee was reminded that Canada trades more with the Andean Community than with any other regional grouping in Latin America and the Caribbean. The Sub-Committee also heard that Colombia is actively seeking greater trade liberalization as part of its strategy to combat the drug trade. The view in that country is that the economic growth and job creation that comes from increased market access will provide an attractive alternative to income from drug production. The Andean Community (especially Colombia) is eager for access to the Canadian market and the message of stability that a trade agreement would send to the rest of the world. It has lobbied Canada vigorously to begin formal negotiations on a preferential access agreement in which Canada provides unilateral market access concessions to the Andean countries. The Andean Community has, in the past, extracted certain market access concessions from the U.S. and Mexico. From a development perspective, the Sub-Committee is supportive of unilateral concessions and special and differential treatment for developing countries. In fact, we registered this support in our recent report on the WTO. However, in the case of the Andean Community, it would prefer to see any such concessions tied to commitments to resolve a number of issues of ongoing concern to Canadian interests. In particular, Canada lacks Foreign Investment Protection Agreements (FIPAs) with Peru, Colombia and Bolivia and does not have double taxation agreements in force with any of the Andean countries, save Ecuador. As well, the Sub-Committee heard that Canadian businesses operating in Colombia face considerable regulatory challenges in that country, hampering investment and expansion of their enterprises. We recommend: Recommendation 9 That, as a precursor to further bilateral trade liberalization within the Andean Community, the federal government agree to the organization’s request for Preferential Market Access, but condition its response on the successful conclusion of negotiations on Foreign Investment Protection and Promotion Agreements and double-taxation agreements, as well as on the resolution of regulatory obstacles to Canadian investment. While the Sub-Committee supports unilateral market access concessions to the Andean Community, it believes that any such concessions should represent an interim step towards a negotiated bilateral free trade agreement where Canada also gains access to that region’s consumer markets. Similarly, the Sub-Committee believes that Canada has unrealized benefits to be captured by reducing barriers to trade with the Mercosur countries. However, economic and political instability in specific countries may complicate entrance into negotiations with either regional grouping. In the case of Mercosur, the collapse of Argentina’s economy casts a shadow over the effectiveness of the group, even if long-term prospects appear bright to some. The challenges facing Argentina are considerable. There is a need for significant political and economic restructuring within the country and for continued international support, particularly from Canada and the other G-8 countries, as well as from international financial institutions such as the International Monetary Fund and the World Bank. The Sub-Committee learned that Canadian businesses in the country are operating on a cash basis because of a lack of liquidity in the local economy. With Argentina struggling to regain its economic footing, Brazil has become the major economic power in Mercosur. Brazilian officials suggested that in this context, Canada might consider entering into bilateral negotiations with Brazil alone and that Brazil’s influence in Mercosur could bring the other three member countries into any agreement which might result. Similarly, political uncertainties in Colombia and Venezuela add an element of uncertainty to any trade negotiations with the Andean Community. If difficulties in either the Andean Community or Mercosur are sufficient to imperil the cohesion of these regional groupings, Canada should be prepared to consider opening negotiations with individual countries. The Sub-Committee recommends: Recommendation 10 That Canada initiate bilateral free trade negotiations with the Andean Community and the Mercosur countries, or alternatively, interested countries within those regional groupings. With Brazil already having been identified by the Government of Canada as its priority South American market, considerable effort should be devoted to improving Canada’s bilateral relationship with that country. C. Strengthening The Overall Relationship With The Americas The most significant way in which Canada can improve its economic linkages with Latin America and the Caribbean is to actively seek trade and investment agreements with that region. However, the Sub-Committee believes that the effectiveness of these formal treaties in improving economic and political interaction between Canada and other countries in the Americas could be augmented by a number of smaller, complementary initiatives. In its travels through South America, the Sub-Committee frequently heard that Canada and its trading partners in Latin America and the Caribbean know very little about one another. Canadian business leaders in Peru observed that Latin America tends to be perceived as a large homogeneous region. In reality, considerable economic, social, political, and in the case of Brazil, linguistic, differences exist between countries. As an example of this uniform view of the region, Brazilian officials expressed concern that the current economic instability in Argentina, although a function of local conditions and domestic policy in that country, will have an adverse effect on Brazil because instability in one country in South America creates a perception of economic volatility in the entire region. Canadian businesses operating in the region also stated that there was a lack of information to make potential investors aware of the opportunities in Latin America and the Caribbean. This viewpoint was also shared by a number of local government and business leaders. In Chile, for example, the Sub-Committee was told that one major aspect of the bilateral relations with Canada that could be improved upon was the exchange of information between the two countries. In particular, individuals in both countries need to be made aware of the business opportunities presented by the bilateral free trade agreement. This type of exchange is imperative if trade and investment linkages between Canada and countries in the region are to be enhanced. It was suggested that the Government of Canada should use its resources, such as Industry Canada’s Strategis web site, to provide more information about economic activity in Latin America and the Caribbean, particularly on investment opportunities and financing, which is often not available locally. The fact that many Canadians and Canadian businesses are unaware of the opportunities in Latin America and the Caribbean may be partly due to Canada’s economic ties with the U.S. Sharing a border with the world’s largest economy has meant that frequently, Canadian businesses have had little need to look past the U.S. for export opportunities. Therefore, to gain full value from developing closer economic ties with other countries in the Americas, the Sub-Committee believes that the federal government has an important role to play in raising awareness of the commercial opportunities available across the hemisphere. We recommend: Recommendation 11 That the federal government take measures to enhance its existing efforts to raise Canadian business awareness of commercial opportunities in the Americas. Additional funds should be allocated to assist the activities of Canada’s foreign diplomatic posts in this area, and greater encouragement and support provided to Chambers of Commerce throughout the Hemisphere. The Sub-Committee was warmly received throughout its travels and was repeatedly told of the value placed by local government and business leaders on face‑to‑face contact between parliamentarians in opening communications, creating trust and building mutually beneficial relationships. The Sub-Committee believes that Canada should improve its existing political ties with the region. It points to mechanisms such as the Interparliamentary Forum of the Americas (FIPA) and the Parliamentary Confederation of the Americas (COPA) as forums where such exchange can take place. As a complement to improving economic ties with Latin America and the Caribbean, we recommend: Recommendation 12 That the Parliament of Canada seek to establish closer parliamentary ties with the countries of the Americas. The Sub-Committee enjoyed service and support of an exceptional quality from Canadian Embassies and Consular Offices while travelling abroad. Not only were Canadian officials able to prepare full and relevant programs on relatively short notice, but they also provided invaluable background information on the issues and concerns that were likely to be raised at subsequent meetings. However, the Sub-Committee was concerned by an apparent lack of co-ordination and communication between Embassies and Consular offices within a given country. Offices appeared to act independently of one another and while they never failed to provide exemplary services, there was no common strategy for all Canadian foreign service operations within a given country. We recommend: Recommendation 13 That, in order to create a more integrated and efficient presence abroad, the Government of Canada ensure that greater co-ordination and communication be introduced between Canadian Embassies and Consular Offices abroad. Within each country, a single foreign-service strategy and explicit organizational structure should be developed. Brazilian officials suggested to the Sub-Committee that one way in which Canada could enhance its visibility in Latin America would be to improve upon the level of public exposure it generates during Parliamentary visits to the region. Awareness of Canada, Canadian trade initiatives and related opportunities would be greatly improved by increasing the level of media visibility. Canada’s foreign service offices have an important role to play in enhancing awareness of Canada and Canadian trade policy initiatives. Embassies and consular offices are already involved in local media relations, but the Sub-Committee believes that assigning dedicated media contacts to Canada’s foreign bureaus, could further increase the local awareness and support for its trade initiatives. We recommend: Recommendation 14 That, in order to assist with the communication and dissemination of information with regard to Canada’s trade-related initiatives, designated media contacts be established in Canadian embassies, particularly in those countries displaying considerable Canadian trade interests.
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