Introduction

On 26 March 1991, Argentina, Brazil, Paraguay and Uruguay signed the Treaty of Asunción, thereby establishing the Common Market of the Southern Cone (Mercosur).[1] In the treaty, the Mercosur countries agreed to create a common market, with harmonized legislation in certain areas, coordinated macroeconomic and sectoral policies, a common external tariff and trade policy regarding countries or groups of countries that are not members of Mercosur, and free movement of goods, services and the “factors of production” among them.

According to Global Affairs Canada, the Mercosur countries together comprise the world’s fourth-largest trading bloc and account for more than 66% of South America’s economic activity. In 2017, the Mercosur countries had a combined population of 263.8 million people,[2] and their collective gross domestic product was 3.5% of the global total in 2016.[3]

On 9 March 2018, Canada and Mercosur announced that they would launch negotiations for a free trade agreement (FTA), with the first round of negotiations occurring on 20 March 2018. On the day that negotiations began, the House of Commons Standing Committee on International Trade (the Committee) adopted a motion to study Canada’s priorities during the Canada–Mercosur FTA negotiations. The Committee held six meetings in Ottawa, Ontario between 19 April 2018 and 5 June 2018, during which 31 witnesses – including Canada’s Minister of International Trade, Global Affairs Canada officials, academics, and representatives of firms, trade associations, organized labour groups and think tanks – were heard. As well, the Committee received three briefs, of which two were submitted by witnesses and one was submitted by a Canadian firm that did not appear as a witness.

This report summarizes some of the comments made by witnesses and contained in the briefs submitted to the Committee. The first section presents their general views about advancing trade relations between Canada and the Mercosur countries, while the second provides observations about minimizing tariff and non-tariff barriers to trade, and promoting regulatory cooperation. The third section contains their thoughts about improving investment relations between Canada and the Mercosur countries, while – in the context of a Canada–Mercosur FTA – the fourth focuses on creating economic opportunities for Canada’s small and medium-sized firms, protecting the environment, upholding labour standards, enhancing labour mobility, contributing to gender equality and safeguarding Indigenous rights. The last section contains the Committee’s thoughts and recommendations.

Some comments made by witnesses or in briefs submitted to the Committee are not summarized in this report, particularly those that address issues that are not directly related to a Canada–Mercosur FTA and that have been examined in earlier reports by the Committee. For example, Canadian Manufacturers & Exporters, the Brazil–Canada Chamber of Commerce, LED Roadway Lighting Ltd., the Agricultural Manufacturers of Canada, the Canadian Centre for Policy Alternatives and the Canadian Vintners Association spoke about existing and desired Government of Canada programs, services and policies designed to assist the country’s firms that either trade internationally or wish to do so. In particular, they mentioned the Trade Commissioner Service, Export Development Canada, export mentorship, investments in innovation and other productivity enhancements, funding for wine export development, and small and medium-sized firms’ awareness of export opportunities. In recent reports on the Trans-Pacific Partnership (TPP), multiculturalism and international trade, and e-commerce, the Committee has studied the topic of Government of Canada programs, services and policies that help Canada’s firms to trade internationally.

Moreover, the Mining Association of Canada and the Canola Council of Canada discussed trade-related infrastructure, including the cost of moving Canada’s products to domestic ports for export. Trade-related infrastructure is addressed in the Committee’s reports on the TPP, the priorities of Canadians having an interest in North American trade and the competitiveness of Canada’s steel sector.

Advancing Trade Relations Between Canada and Mercosur

In speaking to the Committee, witnesses made comments about a Canada–Mercosur FTA’s potential economic and social impacts on Canada. As well, they focused on the possible implications of such an agreement for Canada’s manufacturing, agricultural, seafood, mining, cultural, educational and air transportation sectors.

Figure 1—Canada–Argentina Merchandise Trade, 1997–2017 ($ billions)

Source:  Statistics Canada, Canadian International Merchandise Trade Database, accessed through Trade Data Online on 23 October 2018.

A. Potential Economic and Social Impacts on Canada

According to Canada’s Minister of International Trade, one of the Government of Canada’s goals in the Canada–Mercosur FTA negotiations is “a comprehensive, progressive and inclusive” agreement that will diversify the country’s markets and “capture emerging opportunities for Canadians for decades to come.” In noting that the Government wants to ensure that “everyone has a seat at the [negotiating] table” and would benefit from such an agreement, the Minister indicated that the Government would try to ensure that “all segments of Canadian society” – including women entrepreneurs, youth, Indigenous peoples and members of the lesbian, gay, bisexual, transgender, queer, and 2-spirited community – could “take advantage of the opportunities and benefits created by [a Canada–Mercosur FTA].”

The brief submitted to the Committee by MELLOHAWK Logistics claimed that a Canada–Mercosur FTA would be “win-win and a chance for progress, change and economic and social benefit for all.”

With a focus on the economic impacts of a Canada–Mercosur FTA, the Brazil–Canada Chamber of Commerce stated that such an agreement would be “much better for Canada than for Brazil,” because the latter country is “protectionist.” The Brazil–Canada Chamber of Commerce also mentioned that such an agreement would help Canada to diversify its trade and encourage knowledge-sharing, including between the science and technology sectors in Canada and the Mercosur countries. In identifying its support for a Canada–Mercosur FTA, the International Institute for Sustainable Development remarked that “[i]t’s important for Canada to diversify our trade relations and deepen our engagement with hemispheric partners.”

Unifor pointed out that, while the value of Canada’s exports to the Mercosur countries collectively have decreased by 26% since 2008, the value of imports has nearly doubled. In noting that trade diversification is among the Government of Canada’s objectives for the Canada–Mercosur FTA negotiations, Unifor stressed that “[w]hat we don't need” is Canada committing to an agreement that would “exacerbate excessive” imports and “do little” to increase the country’s exports. The Canadian Centre for Policy Alternatives maintained that opportunities to increase trade between Canada and the Mercosur countries are limited by both geography and “a similar composition of our exports,” and suggested that the Canada–Mercosur FTA negotiations should not be a trade policy priority for Canada.

Unifor supported the Government of Canada’s decision to undertake economic and social impact assessments of a Canada–Mercosur FTA, and stressed the need for these assessments to be completed immediately and independently. With a focus on the potential social impacts of such an agreement, the Canadian Centre for Policy Alternatives urged the Government to commission, at an early stage of the Canada–Mercosur FTA negotiations, independent environmental sustainability and human rights impact assessments.

B. Manufacturing Sector

According to Canadian Manufacturers & Exporters, Canada’s trade deficit with the Mercosur countries collectively is caused by “high tariffs, barriers to entry, and other unfair trading practices,” which should be eliminated in a Canada–Mercosur FTA. Canadian Manufacturers & Exporters believed that such an agreement could “lead to a prosperous manufacturing industry [in Canada] and [a] stronger Canadian economy.”

In highlighting “significant market opportunities” in Argentina and Brazil, the Agricultural Manufacturers of Canada commented that small and medium-sized firms in Canada’s farm equipment sector could hire more domestic workers if a Canada–Mercosur FTA helped them to increase their exports to the Mercosur countries.

Global Automakers of Canada claimed that a Canada–Mercosur FTA would support Canada’s trade diversification strategy. However, in describing the North American Free Trade Agreement (NAFTA) as “the fundamental agreement” under which Canada’s automotive sector has operated since 1994, Global Automakers of Canada thought that renegotiation of that agreement should be “the clear priority.”

Similarly, the Canadian Association of Moldmakers contended that, if Canada does not negotiate a “good NAFTA agreement,” the negotiation, ratification and implementation of various FTAs – including a Canada–Mercosur FTA – would “be for nothing.” In maintaining that a Canada–Mercosur FTA would create opportunities to export moulds to Brazil, the Canadian Association of Moldmakers said that – unlike the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) – such an agreement would be “low risk and high potential.”

The Canadian Steel Producers Association mentioned that Canada exports “virtually no primary steel and very few steel-containing goods” to the Mercosur countries, and stated that such exports would likely not increase with a Canada–Mercosur FTA. Moreover, the Canadian Steel Producers Association believed that such an agreement could erode its members’ share of the domestic market, including in relation to automotive manufacturing and the production of energy, pipe and tubular goods.

The Canadian Steel Producers Association proposed that Government of Canada procurements should favour the purchase of domestic steel, which would help to offset the potential for increased competition in Canada’s steel market that could result from a Canada–Mercosur FTA and would reduce greenhouse gas emissions.

C. Agricultural, Seafood and Mining Sectors

The Canadian Agri-Food Trade Alliance remarked that Canada’s exports of certain agricultural products – including grains, oilseeds, beef and pork – compete with such exports from the Mercosur countries. In observing that its members do not believe that “there is enough potential growth in the Mercosur region to consider [a Canada–Mercosur FTA],” the Canadian Agri-Food Trade Alliance urged the Government of Canada to prioritize such trade policy initiatives as renegotiation of NAFTA, ratification of the CPTPP and exploratory discussions for a Canada–China FTA.

Like Global Automakers of Canada, the Canadian Vintners Association suggested that a Canada–Mercosur FTA would contribute to Canada’s trade diversification goals, but stressed that it would also create competitiveness challenges for the country’s wine sector. As well, the Canadian Vintners Association highlighted Canada’s “significant wine trade imbalance” with the Mercosur countries, and commented that these countries “have not been, and will not be, a priority market for Canadian wine producers.” The Canadian Vintners Association called on the Government of Canada to provide the country’s wine producers with transitional assistance to help them adjust to market changes that are caused by Canada’s FTAs.

The Fisheries Council of Canada thought that a Canada–Mercosur FTA could create opportunities for Canada’s seafood producers to increase their exports to the Mercosur countries, but pointed out that such an agreement is not currently a priority for the country’s seafood sector. As examples of issues that are relatively more important for the sector at this time, the Fisheries Council of Canada noted successful renegotiation of NAFTA, full implementation of the Canada–European Union Comprehensive Economic and Trade Agreement, ratification and implementation of the CPTPP, and Canada–China FTA negotiations.

The Mining Suppliers Trade Association Canada identified Brazil and Argentina as the two highest-priority countries to which Canada’s mining supply and services firms direct their export and marketing activities, and advocated a Canada–Mercosur FTA. Similarly, the Mining Association of Canada encouraged the Government of Canada to negotiate and implement such an agreement.

D. Cultural, Educational and Air Transportation Sectors

In a brief submitted to the Committee, the Alliance of Canadian Cinema, Television and Radio Artists indicated that any cultural provisions in a Canada–Mercosur FTA should be based on the Convention on the Protection and Promotion of the Diversity of Cultural Expressions,[4] which Canada and the Mercosur countries have ratified. According to the Alliance of Canadian Cinema, Television and Radio Artists, such provisions would ensure that Canada and each of the Mercosur countries would have “the absolute right to support its own artists and cultural producers,” and would promote the development of “more robust” forms of cooperation and cultural exchanges.

As well, the Alliance of Canadian Cinema, Television and Radio Artists urged the Government of Canada to convene a “high-level meeting of leaders of the Canadian cultural sector” to examine possible ways in which to develop Canada’s cultural relationship with the Mercosur countries. The Alliance of Canadian Cinema, Television and Radio Artists stressed the importance of ensuring that representatives of artists’ associations are able to participate in any such meeting.

According to the Brazil–Canada Chamber of Commerce, Canada is “the country of choice for Brazilians studying abroad.” The Brazil–Canada Chamber of Commerce predicted that the number of Brazilian students in Canada would increase if a Canada–Mercosur FTA were implemented.

In noting that FTAs that increase trade also create opportunities to transport cargo and businesspersons between Canada and other countries, Air Canada said that a Canada–Mercosur FTA could “foster the type of business growth and trade opportunities” that both support business and “provide an excellent foundation” to expand air routes.

Minimizing Tariff and Non-Tariff Trade Barriers

Witnesses discussed tariffs with the Committee, and focused particularly on those that are applied on Canada’s manufacturing, canola product and seafood exports to the Mercosur countries. As well, regarding non-tariff barriers to trade, they highlighted certain administrative requirements and processes, sanitary and phytosanitary measures, and other trade-related policies. Witnesses also mentioned regulatory cooperation and alignment between Canada and the Mercosur countries.

Figure 2—Canada–Brazil Merchandise Trade, 1997–2017 ($ billions)

Source: Statistics Canada, Canadian International Merchandise Trade Database, accessed through Trade Data Online on 23 October 2018.

A. Tariffs

Canada’s Minister of International Trade observed that the country’s average tariff rate of 4.1% is lower than the rate of 13.7% for the Mercosur countries collectively. According to the Minister, trade between Canada and the Mercosur countries as a bloc is not balanced because “the [Mercosur countries’ tariff] rates are so high that it makes it difficult for [Canada’s] products and services to compete in [those countries].” The Minister added that eliminating or reducing tariff rates in a Canada–Mercosur FTA would make Canada’s firms more competitive in those countries.

Similarly, Canadian Manufacturers & Exporters maintained that the Mercosur countries’ tariff rates of up to 35% that are applied on automotive goods, machinery and equipment, and pharmaceutical products “are trade prohibitive [when] compared to Canada's relatively modest tariff levels.” In stating that these countries’ tariffs “directly and negatively impact [Canada’s] major industrial and export sectors,” Canadian Manufacturers & Exporters commented that eliminating these tariffs should be a priority during the Canada–Mercosur FTA negotiations.

Global Automakers of Canada contended that the Mercosur countries’ tariff rates that are applied on automobiles and their parts are “higher than almost anywhere in the world,” and thought that eliminating tariffs on automobile parts in a Canada–Mercosur FTA “could present opportunities for Canadian parts makers and advanced technology companies.” Moreover, the Brazil–Canada Chamber of Commerce claimed that Brazil’s effective tax rate on imports of automobiles and their parts is approximately 100% because of certain taxes that are applied in addition to the country’s 35% tariff rate on these products.

Moreover, the Canadian Vehicle Manufacturers’ Association suggested that the Mercosur countries can apply import tariffs multiple times on the same good, and provided the example of vehicles: a 35% tariff is applied on a vehicle when it is shipped from Canada to a Mercosur country, and a tariff is paid again if that vehicle is shipped from one Mercosur country to another.[5]

LED Roadway Lighting Ltd. remarked that the amount of the Mercosur countries’ tariffs can exceed the cost of producing its goods, “making commercial success for our products and other Canadian exports nearly impossible.” Similarly, the Canadian Association of Moldmakers mentioned that its members have been unable to “penetrate” Brazil’s market because of tariffs and protectionist policies, and indicated that a Canada–Mercosur FTA could allow Canada’s moldmakers to increase their exports to that country.

In describing opportunities to supply Brazil’s mining and transportation sectors as “significant,” Redline Communications pointed out that high tariffs make it difficult to export Canada’s software and technology to that country. Redline Communications also stated that, because of tariffs, its exports to Argentina are solely to that country’s oil and gas sector. In a brief submitted to the Committee, Redline Communications noted that the Mercosur countries apply export and import duties on goods that customers return for repair, which entails “significant … costs” for them. Accordingly, Redline Communications thought that a Canada–Mercosur FTA should reduce – if not eliminate – tariffs that are applied on electronic and telecommunications equipment imports, including those that are being returned for repair, and eliminate any local content requirements[6] in relation to these imports.

The Agricultural Manufacturers of Canada characterized Argentina’s and Brazil’s tariffs on farm equipment as “prohibitive,” and said that the Government of Canada should “aggressively pursue” a Canada–Mercosur FTA that would reduce these tariffs. In pointing out that the Mercosur countries’ tariff rates on Canada’s farm equipment can change, MacDon Industries Ltd. maintained that such an agreement should provide certainty regarding future rates.

According to the Canola Council of Canada, a Canada–Mercosur FTA should eliminate tariffs that are applied on Canada’s canola products, including oil and meal. The Canola Council of Canada also remarked that, even without tariffs, opportunities for its members to export to the Mercosur countries would be insignificant because those countries “produce many of the same things we do and are very competitive large exporters of oil and protein already.”

The Fisheries Council of Canada stated that a Canada–Mercosur FTA should eliminate tariff rates that are as high as 32% for fish and seafood, and thereby increase Canada’s fisheries exports to the Mercosur countries.

B. Non-Tariff Barriers

According to Canada’s Minister of International Trade, the country’s exporters want “stable, efficient, transparent and … predictable” access to foreign markets. The Minister claimed that Canada’s small and medium-sized firms would not make significant investments designed to increase their market share in “countries where technical barriers to trade abound.” As well, the Minister believed that eliminating tariffs in a Canada–Mercosur FTA would not be sufficient to “realize the full potential” of Canada’s trade relationship with Mercosur as a bloc.

With a focus on administrative requirements and processes, the brief that MELLOHAWK Logistics Inc. submitted to the Committee noted that exports by Brazil’s small and medium-sized firms to Canada are “hampered by Brazilian bureaucracy.” Similarly, the Brazil–Canada Chamber of Commerce observed that labour laws, certification requirements and “significant bureaucracy” affect Canada’s trade with Brazil. The Agricultural Manufacturers of Canada indicated that the ability of its members to export to the Mercosur countries has been affected by such non-tariff barriers as unclear regulatory processes and a lack of intellectual property protections.

The Canadian Vehicle Manufacturers’ Association thought that import-licensing requirements, as well as both complex customs procedures and federal and state tax regimes, have created “significant challenges” for firms that export vehicles to the Mercosur countries. The Canadian Vehicle Manufacturers’ Association emphasized the need for provisions in a Canada–Mercosur FTA that would address current and future non-tariff barriers, and for a “rigorous, time-efficient, and legally binding” dispute-settlement mechanism to enforce compliance with these provisions. As an example of measures that reduce the expected rate of return on Canadian investments in the Mercosur countries, the Mining Suppliers Trade Association Canada identified tax rules, and specifically mentioned that “[t]here's always new taxation that you haven't heard about.”

The Canola Council of Canada stated that a Canada–Mercosur FTA should contain provisions regarding biotechnology and the “spurious use of sanitary and phytosanitary measures,” and commented that such provisions could “build momentum” for similar provisions to be included in Canada’s other FTAs. The Fisheries Council of Canada supported the CPTPP’s sanitary and phytosanitary provisions, and asked that they be used as a model for provisions in a Canada–Mercosur FTA.

In highlighting that trade in animal genetics relies heavily on “animal health discussions, protocols, and negotiations,” the Canadian Livestock Genetics Association noted its concern that the Mercosur countries “use either the Mercosur rules or those of their own country, depending on [which are] more favourable,” which limits market access for exporters in Canada’s livestock genetics sector.

Concerning other trade-related measures and practices, Canadian Manufacturers & Exporters called for the removal of trade barriers resulting from “anti-trade” policies adopted by some of the Mercosur countries that are harming “Canadian economic interests,” such as those relating to currency manipulation, state-owned enterprises, subsidies, dumping and regulatory complexities. Like the Canadian Vehicle Manufacturers’ Association, Canadian Manufacturers & Exporters suggested that a Canada–Mercosur FTA should include expedient and effective dispute-resolution provisions.

The Canadian Vehicle Manufacturers’ Association believed that Canada’s FTAs should have provisions designed to ensure that currency manipulation does not occur. In the view of the Canadian Steel Producers Association, a Canada–Mercosur FTA should include “enforceable controls” regarding both currency manipulation and state-owned enterprises. In focusing on state-owned enterprises, the Canadian Steel Producers Association observed that such an agreement should contain provisions that would prevent government ownership of entities that “operate in a commercial context,” and would require state-owned enterprises both to operate “according to commercial considerations” and to refrain from discriminating against foreign suppliers. Concerning subsidies, the Canadian Steel Producers Association said that state-owned enterprises should be restricted in their ability to provide and receive subsidies, and remarked that countries should be able to apply countervailing measures in response to such subsidies.

The Canadian Steel Producers Association pointed out that the Canadian International Trade Tribunal has imposed anti-dumping remedies against certain steel imports from the Mercosur countries, including Brazil, and urged the Government of Canada both to improve the country’s trade remedy system and to provide the Canada Border Services Agency with increased resources to undertake investigation and enforcement activities.

Armstrong Fluid Technology noted its investment in manufacturing operations in Brazil in an effort to avoid non-tariff barriers that affect heating and cooling equipment. As well, Armstrong Fluid Technology stated that it could manufacture equipment in Canada and “take many more products into the Brazilian market if these market access issues were resolved.”

C. Regulatory Cooperation

In supporting enhanced regulatory cooperation and alignment between Canada and the Mercosur countries, the Canadian Vehicle Manufacturers’ Association mentioned that alignment with – and recognition of – North America’s regulatory standards, which are “underpinned” by scientific evidence and “rigorous compliance requirements,” would both increase trade in automobiles and their parts, and establish new supply chains between North America and the Mercosur countries. In particular, the Canadian Vehicle Manufacturers’ Association maintained that accepting Canadian motor vehicle technical and safety standards, and the U.S. standards to which they are aligned, is required to ensure that Canada’s motor vehicle exporters can access the Mercosur countries. Canadian Manufacturers & Exporters observed that some countries adopt vehicle testing requirements even though they lack the equipment that performs compulsory tests, and said that regulatory alignment is both an essential component of modern FTAs and needed in order “to eliminate all those barriers that can pop up on an ongoing basis.”

The brief that Redline Communications submitted to the Committee suggested that a Canada–Mercosur FTA should: ensure that Canada’s safety standards are recognized; simplify or eliminate certain product approval processes and import verification procedures for goods that are being returned for repair; and streamline taxation requirements between Canada and the Mercosur countries.

Improving Investment Relations Between Canada and Mercosur

Witnesses spoke to the Committee about existing Canadian investments in the Mercosur countries and Brazilian investments in Canada, and about investment protections in a Canada–Mercosur FTA.

Figure 3—Canada–Paraguay Merchandise Trade, 1997–2017 ($ millions)

Source: Statistics Canada, Canadian International Merchandise Trade Database, accessed through Trade Data Online on 23 October 2018.

A. Existing Investments

With a focus on existing Canadian investments in the Mercosur countries, the Mining Suppliers Trade Association Canada observed that more than 61 Canadian-owned exploration and mining firms operate in the Mercosur countries, and stated that these firms have an ownership stake in 27% of the active exploration and mining projects in those countries. According to the Mining Association of Canada, Canada’s mining firms invested $1.9 billion in Brazil and Argentina in 2016.

Armstrong Fluid Technology remarked that the lack of sufficient measures in the Mercosur countries to meet the objectives of the Paris Agreement has made the Mercosur countries “an attractive market for retrofitting energy-obsolete [heating, ventilation and air conditioning] equipment,” and has provided the firm with an incentive to continue to invest in Brazil.

In noting that Brazil’s firms want to expand their international operations “because they don't want to put all [of] their eggs in one basket,” the Brazil–Canada Chamber of Commerce mentioned that many of the country’s firms “believe in” – and have invested in – Canada. The Brazil–Canada Chamber of Commerce pointed out that, at $19.7 billion, Brazil was Canada’s seventh-largest source of foreign direct investment in 2015.

B. Opportunities to Improve Investment Relations

With a focus on the Mercosur countries’ existing investment cooperation and facilitation agreement, which established a dispute-avoidance system, the International Institute for Sustainable Development noted that this system includes a state-to-state, rather than an investor–state, dispute-settlement process that is used as a last resort for resolving disputes. The Institute for Sustainable Development suggested that a Canada–Mercosur FTA could contain such a system.

The Canadian Centre for Policy Alternatives stated that Canada’s mining firms “have used [investor–state dispute-settlement mechanisms] abroad in a way that … brings Canada into disrepute.” In pointing out that Brazil has never ratified an investment protection agreement that includes investor–state dispute-settlement provisions, the Canadian Centre for Policy Alternatives urged the Government of Canada to resist the inclusion of such a mechanism in a Canada–Mercosur FTA, and to try to eliminate the investor–state dispute-settlement mechanisms that are contained in Canada’s existing foreign investment promotion and protection agreements with Argentina and Uruguay.

From a different perspective, the Mining Association of Canada commented that investment protections increase investors’ confidence that their investments “will have a greater degree of security, a greater degree of reliability than [a] comparable investment that's without those types of opportunities … [or] those types of protections.” The Mining Association of Canada said that Canada’s mining sector supports the inclusion of “investment protection mechanisms” in FTAs.

Addressing the Priorities of Certain Groups

In their comments to the Committee, witnesses spoke about provisions in a Canada–Mercosur FTA that could create economic opportunities for Canada’s small and medium-sized firms, protect the environment, uphold labour standards, enhance labour mobility, contribute to gender equality and safeguard the rights of Indigenous peoples.

Figure 4—Canada–Uruguay Merchandise Trade, 1997–2017 ($ millions)

Source: Statistics Canada, Canadian International Merchandise Trade Database, accessed through Trade Data Online on 23 October 2018.

In stating that the governments of Canada and the Mercosur countries have agreed “to work towards an ambitious, inclusive, and progressive” Canada–Mercosur FTA, Canada’s Minister of International Trade mentioned that discussions during the first round of negotiations addressed such topics as small and medium-sized firms, the environment, labour, gender and Indigenous peoples.

Canada’s Minister of International Trade emphasized that the country’s small and medium-sized firms should benefit from the FTAs that Canada signs. The Minister highlighted that, during the Canada–Mercosur FTA negotiations, the Government of Canada would make efforts to include a chapter designed to assist these firms. Specifically, the Minister remarked that such a chapter would ensure that Canada and the Mercosur countries share best practices and provide small and medium-sized firms with information that is easily accessible.

Regarding the environment and labour, Canada’s Minister of International Trade commented that the Government of Canada will not engage in FTA negotiations “at the expense of” environmental or labour standards, or “governance principles.” The Minister also maintained that the Government raises standards in these areas whenever it participates in such negotiations.

According to the Canadian Centre for Policy Alternatives, at a minimum, a progressive trade agenda should include two “prerequisites”: obligations to enforce “high domestic environmental standards” consistent with the commitments contained in multilateral environmental agreements; and labour standards that are “strong” and “fully enforceable.” The Canadian Centre for Policy Alternatives added that achieving these prerequisites could be difficult in a Canada–Mercosur FTA because Brazil, for instance, does not include “binding labour and environmental standards in trade agreements.”

Regarding environmental standards, the International Institute for Sustainable Development believed that an environmental chapter in a Canada–Mercosur FTA should identify and liberalize trade in specific environmental goods and services. The International Institute for Sustainable Development also advocated sustainable development provisions in such an agreement that would both build on those in the Canada–European Union Comprehensive Economic and Trade Agreement and support sustainability standards, including in relation to eco-labelling,[7] corporate social responsibility, and forestry, fisheries, agricultural and mining operations.

With a focus on labour standards, Unifor claimed that it is unclear whether the Mercosur countries are willing to “expand their level of ambition regarding [the inclusion of] social clauses in trade agreements.” Unifor noted that, while these countries have agreed to “strong” and “aspirational” language in the Mercosur Social-Labour Declaration,[8] the declaration is “non-binding and unenforceable.” As well, Unifor thought that Brazil’s efforts to reform its labour laws could “put [that country] out of step” with the International Labour Organization’s core conventions.[9]

The Mining Association of Canada said that the Canada–Mercosur FTA negotiations provide an opportunity to enhance labour mobility between Canada and the Mercosur countries. In the view of Redline Communications, the process for obtaining work visas in the Mercosur countries is “challenging and time-consuming” for small firms, and “an electronic approach” to this process could simplify the movement of personnel between Canada and these countries. Specifically, Redline Communications proposed that visa requirements should be replaced with reciprocal electronic travel authorizations.

With a focus on gender provisions in a Canada–Mercosur FTA, Canada’s Minister of International Trade stated that the country’s women entrepreneurs would benefit from an FTA that would ensure an absence of discrimination based on nationality and/or gender when they either undertake international transactions or apply for permits and licences to serve clients in other countries.

Concerning Indigenous rights, Ryerson University’s Pamela D. Palmater – who appeared as an individual – remarked that “specific and binding legal protections for [I]ndigenous rights” should be addressed in all chapters of an FTA, as appropriate, rather than in a side chapter to an FTA. As well, Ms. Palmater believed that Canada’s FTAs should contain a “rights-based, benefit-sharing formula with [I]ndigenous peoples,” and stressed the need for an independent and “fulsome monitoring, research, and evaluation mechanism” that would ensure that such agreements, including a Canada–Mercosur FTA, are “fair,” “safe” and “sustainable,” and prioritize human and Indigenous rights. In addition, Ms. Palmater suggested that Canada’s FTAs should include “opt-out provisions for people with [A]boriginal title” who oppose a particular FTA.

Ms. Palmater urged the Government of Canada to consider the impact of a Canada–Mercosur FTA on Indigenous peoples in Canada and in the Mercosur countries, and commented that such an agreement should involve a “fair, open and democratic process of consultation.” As well, Ms. Palmater shared her view that – in the international context, such as regarding trade agreements – section 35 of the Constitution Act requires the “free, prior, and informed consent of the [I]ndigenous nations.”

The Committee’s Thoughts and Recommendations

In the Committee’s view, Canada must continue to develop trade and investment relations with countries and blocs of countries that are – or could be – significant markets for the country’s exports. For example, recognizing that Canada does not currently have a bilateral FTA with Argentina, Brazil, Paraguay or Uruguay, the Canada–Mercosur FTA negotiations and any resulting agreement could advance such relations between Canada and the Mercosur countries, especially if there is a focus on eliminating tariff and non-tariff barriers to trade, enhancing regulatory cooperation, ensuring that Canada’s steel, wine and cultural sectors are not adversely affected, improving investment relations and addressing the priorities of certain groups.

Tariffs continue to limit Canada’s exports of moulds, farm equipment, automobiles and their parts, lighting, software and other technology products, canola oil and meal, seafood and other goods to the Mercosur countries. The Committee feels that eliminating such barriers in a Canada–Mercosur FTA would help to provide Canada’s exporters of these and other products with enhanced access to the Mercosur countries.

However, a focus on eliminating tariffs is not sufficient. The Committee also believes that a Canada–Mercosur FTA must address non-tariff barriers that make it difficult for Canada’s firms to sell to – or do business in – the Mercosur countries. Thus, such an agreement should simplify administrative requirements and processes that are complex or unclear, and should contain provisions about sanitary and phytosanitary measures, currency manipulation, state-owned enterprises and subsidies. In addition, regulatory cooperation and alignment between Canada and the Mercosur countries should occur.

While FTAs can create export opportunities for some firms, they can also make it difficult for other firms to compete domestically. For example, the market access provisions in a Canada–Mercosur FTA could reduce the domestic competitiveness of Canada’s wine and steel producers. If the Government of Canada implements such an agreement, the Committee’s view is that the Government should consider new measures that would help these and other negatively affected producers to compete in the domestic market.

Canada’s cultural sector makes numerous contributions to the country’s economy and its society. In the Committee’s opinion, governments should be able to adopt, implement and maintain policies and measures that support their cultural sectors. In this respect, a Canada–Mercosur FTA that includes cultural cooperation provisions based on the Convention on the Protection and Promotion of the Diversity of Cultural Expressions could help to ensure that this sector continues to make economic and other contributions in Canada and in each of the Mercosur countries.

The Committee recognizes that the inclusion of investment provisions in a Canada–Mercosur FTA could help to enhance investment relations between Canada and Mercosur as a bloc. With a view to promoting investment, and recognizing the right of governments to adopt and maintain measures in the public interest, the Government of Canada should examine the advantages and disadvantages of various mechanisms for enforcing investment provisions in the country’s FTAs, including a Canada–Mercosur FTA.

Increasingly, there is an expectation – in Canada and in a number of other countries – that the benefits of trade generally, and FTAs specifically, should be “shared” as broadly as possible. In that context, the Committee underscores that a Canada–Mercosur FTA should create economic opportunities for Canada’s firms, including those that are small or medium in size, but should also protect the environment, uphold labour standards, enhance labour mobility, contribute to gender equality and safeguard the rights of Indigenous peoples.

Lastly, noting that the Government of Canada is pursuing a number of trade policy initiatives simultaneously, the Committee underlines that the Canada–Mercosur FTA negotiations should not limit the negotiation, ratification or implementation of other FTAs.

Within this context, the Committee recommends:

Recommendation 1

That the Government of Canada, during negotiations for a free trade agreement with the Mercosur countries, prioritize provisions that would eliminate tariffs applied on Canada’s exports, including moulds, farm equipment, automobiles and their parts, and products of the country’s software, technology, lighting, canola and fisheries sectors.

Recommendation 2

That the Government of Canada, during negotiations for a free trade agreement with the Mercosur countries, seek to include provisions that would eliminate current and future non-tariff barriers that limit Canada’s exports to, and investments in, those countries. In particular, provisions in a Canada–Mercosur free trade agreement should address administrative requirements and processes that are complex or unclear, sanitary and phytosanitary measures, currency manipulation, state-owned enterprises and subsidies. In addition, the Government of Canada should work with the governments of the Mercosur countries to enhance regulatory cooperation and alignment among Canada, Argentina, Brazil, Paraguay and Uruguay.

Recommendation 3

That the Government of Canada consider implementing new measures designed to reduce any negative impacts of a Canada–Mercosur free trade agreement on the domestic competitiveness of Canada’s firms.

Recommendation 4

That the Government of Canada, during negotiations for a free trade agreement with the Mercosur countries, endeavour to include cultural provisions that meet the following conditions: are based on the Convention on the Protection and Promotion of the Diversity of Cultural Expressions; ensure that Canada and each Mercosur country has the right to support its artists and other cultural producers; and increase bilateral cultural cooperation.

Recommendation 5

That the Government of Canada, at an early stage of the negotiations for a free trade agreement with the Mercosur countries, examine the advantages and disadvantages for Canada of various mechanisms designed to resolve investment-related disputes, while recognizing the right of governments to adopt and maintain measures in the public interest.

Recommendation 6

That the Government of Canada, during negotiations for a free trade agreement with the Mercosur countries, work toward outcomes that would create economic opportunities for Canada’s small and medium-sized firms, protect the environment, uphold labour standards, enhance labour mobility, contribute to gender equality and safeguard the rights of Indigenous peoples.