Free trade in South America: not without issues

Will Canada feel the warmth from its South American friends?

Well, at least the easy part is over. The real work begins this month.

Canada has once again confirmed — after a series of fits and starts in the past — that it has been engaged in formal free-trade negotiations with the Mercosur group of countries (Argentina, Paraguay, Brazil and Uruguay) in South America. Ottawa will need to be careful, though, that it doesn’t get its hopes too high.

As Canada’s Minister of International Trade Maninder Sidhu recently acknowledged: “We’re stepping up the negotiation timelines a little bit. Hopefully we can have negotiations every six weeks or so, and hopefully we can get it done by the fall.”

Setting this coming fall as an expected completion date for a Canada-Mercosur trade agreement does sound a tad ambitious. And there are sure to be significant bumps along the road — as has happened before.

One should remember that these free trade talks will be complex, comprehensive and the South Americans are never in any hurry.

In previous trade efforts, meaningful discussions with Mercosur were tripped up by serious issues around agricultural exports, Mercosur’s external tariff, product incompatibility matters and sector-specific protectionism.

Ultimately, formal negotiations got bogged down, as frustration set in on both sides, and eventually the requisite political will needed to carry a worthwhile deal across the goal line evaporated.

Of course, this all fits nicely into Prime Minister Mark Carney’s quest to execute a diversification trade strategy to minimize Canada’s exposure to a tariff-loving U.S. president. It’s all connected in some way to Carney’s highly-touted pledge to double Canada’s non-U.S. commercial exports over the next decade.

It is instructive to note that the Mercosur community is not a market that Canada should turn up its nose at. These are advanced economies, with a population of more than 280 million, and a collective gross domestic product of roughly C$4 trillion. There is also plenty of room for growth — with two-way trade reaching just C$14 billion in 2024.

Canada’s trade objectives are really not that much different from what they were in past discussions with Mercosur.

Ottawa wants to clear a path for Canadian businesses and producers to expand their market access (from energy and agriculture to AI and seafood) and to take advantage of lucrative investment opportunities in South America.

Canadian trade negotiators have undoubtedly been told to ensure that a legitimate dispute settlement mechanism, legal services and professional mobility provisions are included in any final agreement.

It remains to be seen, however, whether Canada will be able to insert corporate social responsibility clauses (including equity and environmental standards) into the trade pact.

The Mercosur countries, for their part, are also interested in viable investment opportunities in sectors such as mining and rare earths. And you can bet that they will push hard to break down any barriers to their beef, minerals and soy exports to Canada. But this is obviously where things get a little tricky.

Not surprisingly, Canadian beef producers are already sounding the alarm over threats to the domestic industry. “Not all jurisdictions represent the same opportunity and present different risks that I think really need scrutiny,” said Tyler Fulton of the Canadian Cattle Association.

Canadian producers from the chicken industry are also singing from a similar hymn sheet.

Granting concessions or tariff-rate quotas in the chicken sector to Mercosur could spell more trouble. Tom Klompmaker, the chair of the Chicken Farmers of Canada, noted: “A potential agreement with Mercosur presents and even greater risk. The scale, combined with lower production costs and expanding global reach, creates disproportionate pressure on Canadian producers.”

The one thing that Canadian officials need to be mindful of is not wanting a Mercosur deal more than our South American partners.

Doing so would only confer bargaining leverage in the hands of Mercosur and leave the Canadian side with little choice but to make major trade concessions to secure an agreement. Put another way, Canada needs to be prepared to walk away from the negotiations if a mutually beneficial deal is not in the cards.

One does hope that Canada and Mercosur can cobble together a free trade pact that will advantage both sides. Given past experience, though, that won’t be easy.

Perhaps the pressing circumstances of the day and a sense of trade urgency shared by both Canada and Mercosur will be enough this time to bring a deal home.

But even if the trade talks do falter, the Carney government should not shy away from making its presence felt in Latin America. Word that Carney is planning to visit Brazil — the region’s leading economic power — is certainly a good start.

Indeed, expanding and deepening our relations with countries in South America is an excellent stepping stone for enlarging Canada’s footprint in the Americas.

More to the point: the Trump Administration embrace of the so-called “Donroe Doctrine,” which only sends shivers down the sides of many Latin Americans, has opened up some hemispheric space for Canada to take advantage of.

Peter McKenna is professor of political science at the University of Prince Edward Island in Charlottetown.