Stephen Harper hopes to woo Brazil for trade deal
August 05, 2011
Source: STEVEN CHASE, The Globe & Mail
Stephen Harper is jetting to Brazil this weekend with a crucial mission: cementing trade ties with a country of 190 million people that experts predict will be among the most influential global players in the years ahead.
Canada-Brazil relations have not always been cordial. A decade ago, the two countries had a bitter and hostile spat over government aid to their respective flagship aircraft manufacturers and publicly sparred over a Canadian ban on Brazilian beef.
Only five years ago, Brazilian giant Vale S.A.´s takeover of Canadian mining icon Inco helped fuel fears of a "hollowing-out" of Canada's corporate sector, and the Rio de Janeiro-based company later faced accusations that it had failed to live up to job commitments under the deal.
During the two-day visit, which begins in earnest on Monday, Mr. Harper will try to forge ties with new Brazilian President Dilma Rousseff, and deliver a keynote speech to a Sao Paulo business audience.
The trip comes at a pivotal time in Canada's foreign relations, as the country scrambles to establish a firmer foothold in huge emerging economies from Asia to South America.
Brazil is a member of the so-called BRIC group – Brazil, Russia, India and China – nations that are expected to be among the world's dominant economies over the next 100 years. The U.S. Council on Foreign Relations last month said Brazil "is on the short list of countries that will most shape the 21st century."
Mr. Harper's trip, which kicks off a brief tour of Latin America from Colombia to Honduras, is the first visit to Brazil by a Canadian Prime Minister in nearly seven years.
A free-trade deal with Brazil would be the fastest route to unlocking business opportunities in what is now the world's eighth largest economy, but a deal won't be reached in the short run.
Mr. Harper's first job, then, is winning over Brazil as a strategic partner and helping Canadian companies go after the slew of rich opportunities that already exist for foreign investors, from infrastructure spending to mining and oil-and-gas development.
Another big draw is the expanding pool of Brazilian consumers with money to spend and a hunger for the same good and services available to Canadians.
"There are tens of millions of a growing middle class in Brazil that wants pretty much the same things that Canadians want. So there is the scope for gains from trade with Brazil," said Jonathan Hausman, vice-chair of the Canadian Council for the Americas.
For instance, a factory outside Sao Paulo is manufacturing smartphones for Research in Motion. Canadian banks and legal firms are also working to find a footing in Brazil.
One important barrier to a free-trade deal is that Brazil can negotiate only as part of the economic bloc Mercosur. This means its three partners, Argentina, Paraguay and Uruguay, get a veto over what constitutes an agreement.
Brazilian trade official Tatiana Lacerda Prazeres told The Globe in an interview that her government is certainly interested in embarking on free-trade talks.
Mercosur and Canada announced last month they were starting exploratory discussions aimed at looking at deepening economic ties.
Ms. Prazeres, the Brazilian secretary for foreign trade, said there's interest on both sides for free-trade negotiations to start. She said preliminary discussions have shown "there is room for launching negotiations."
Mercosur offers a bigger market – 250 million consumers – than Brazil alone, but history suggests trade discussions with this economic bloc as a whole could act as a drag on talks.
"The European Union has been negotiating bloc to bloc with Mercosur since 1995. That's 16 years," said David Fleischer, a professor emeritus of political science at the University of Brasilia.
Striking a deal would be no easy feat. Protectionist Canadian policies that shelter poultry and dairy farmers from international competition could pose a problem. Brazil is among the world's biggest poultry exporters, but Canada uses high tariff walls to discourage imports of foreign chicken, milk and cheese.
Asked if Brazil would be willing to exempt from future talks Canadian tariffs on these protected foods, Ms. Prazeres said Brazil was not taking any subject off the table. "This has to be a comprehensive negotiation."
And finally, Brazil's currency is overvalued. It has risen sharply on foreign-exchange markets, which is making some Brazilian companies skittish about deals that would make it easier for outsiders to compete on their turf.
Still, Ms. Prazeres said, consultations have shown the Brazilian business community is less reluctant to reach an agreement with Canada than the European Union.
Ms. Prazeres said she hopes Mr. Harper's visit to Brazil on Monday and Tuesday "creates a very big momentum to raise awareness in Brazil about Canada."
Mr. Harper has been pushing to sign as many free-trade agreements as he can to clinch preferential market access around the world and insulate Canada from growing protectionism that re-emerged with the global recession of 2008-2009.
The Harper government has signed deals with eight jurisdictions since taking office in 2006.
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