http://www.embassymag.ca/html/index.php ... 12/brazil/

Embassy, October 12th, 2005
OPED
By Dean Foster
Moving Forward with Brazil (and Past the FTAA)
International trade relations have climbed back to the top of the Canadian political agenda in recent months, fueled, of course, by the United States' continued breach of NAFTA softwood lumber rulings.

In addition to threats of retaliation, speeches and statements from Prime Minister Paul Martin, Cabinet ministers, and other officials have continued to drop the names of India and China, emphasizing the opportunities that the two fast-developing giants pose for Canada. Beyond the real trade and investment potential that these countries provide for Canadian firms, their oft-repeated mentions are intended to show U.S. officials that Canada is eagerly pursuing relationships with the up-and-coming economic powers in an effort to reduce the U.S. share of Canada's export markets (currently a whopping 85 per cent for goods and 58 per cent for services). To this end, Martin voiced his eagerness to discuss a deal for increased softwood lumber exports to China during Chinese President Hu Jintao's Canadian visit in mid-September. Not long after, several deals were struck during a high-profile visit by India's foreign minister, including resumed nuclear connections.

Missing, however, from the recent name dropping is Brazil, identified along with China and India as "new economic powers" with which Canada should build stronger economic relations, according to 2005 International Trade Canada reports. Brazil, with a population of just over 175 million, is the world's fifth most populous country and, with an annual gross domestic product of around $490 billion (US) (not far behind India's $600 billion), is by far the largest economic and political power in South America.

Armed with what Henry Kissinger has called "Latin America's most effective foreign service," Brazil takes pride in its regional and global roles, including recent leadership of a tough-bargaining developing country coalition in the World Trade Organization (known as the G20) and is the dominant component of Mercosur, an often squabbling but recently revitalized free trade group and customs union that also includes Argentina, Uruguay and Paraguay, as well as some "associate" members.

For its Brazilian trading relations, Canada continues to hope for a resurgence of negotiations for a Free Trade of the Americas (FTAA), which would include every country in the hemisphere, except Cuba. Negotiations for such an agreement began in 1994 but, due to gridlock between Brazil and the U.S., failed to reach their Jan. 2005 deadline and now lay in indefinite hibernation.

In November of last year, Martin and Brazilian President Lula da Silva moved past a top-level trade dispute over airplane subsidies by launching the "Canada-Mercosur Trade and Investment Dialogue," with the goal of enhancing the countries' economic relationship through the continued negotiation of the FTAA and other possible measures down the road. Mercosur leaders offered full negotiations for a bilateral free trade agreement but Canada initially declined, insisting that it would be in conflict with FTAA negotiations. Since then, "exploratory" talks for a bilateral deal have continued. On Sept. 1, Canada's top FTAA negotiator sent a letter to the Brazilian and American co-chairs of the negotiations requesting that talks be resumed and completed.

Early next month, Canada will take part in the fourth Summit of the Americas, held in Mar del Plata, Argentina, with the official theme of "creating jobs to fight poverty and strengthen democratic governance." Despite Canada's best efforts to amend the Summit declaration (Canada's suggested revisions to the draft declaration have included an as-yet blank paragraph concerning the FTAA), it is highly unlikely that anything more than a vague, meaningless pledge to eventually continue negotiations will be made by the 34 countries.

In addition to strong opposition from Brazil and Venezuela, most other countries in the hemisphere are disinterested because they have already secured or are currently negotiating strong trade and investment agreements with the United States and/or Canada and would have little more to gain from an FTAA. For its part, the United States does not want to waste its time if Brazil does not want to negotiate. The FTAA negotiations will most likely remain cryogenically frozen for the foreseeable future.

What, then, is to be done about trade relations with Brazil, designated by International Trade Canada as "a priority market" and our "most important trading partner in South America"? Currently Canada-Brazil trade is conducted through the World Trade Organization framework and amounts to a modest $3.3 billion, while the stock of Canadian foreign direct investment in the country sits at $7.5 billion. Many assume that the relationship's potential is much larger and that a stronger bilateral agreement would boost those numbers substantially. Any deal with Brazil would have to be conducted with Mercosur as a whole, which, as we know, has enthusiastic support from all of its members.

A report published in last week's Embassy indicated that the Martin government has now backtracked on plans made this summer to move forward with negotiations, much to the dismay of Mercosur's negotiating officials.

It is not too late to reverse course. A high-profile indication of intent could be made by Martin and Mercosur leaders at next month's Summit of the Americas and early concrete steps could be taken at the next meeting of the "Dialogue," scheduled for next April in Asunción, Paraguay. Such a move would no doubt send a loud message of Canadian involvement in the hemisphere (a political goal in itself) and display Canada's prowess for new trade relationships to the United States, providing U.S. free-trade interests and commentators with ammunition against their government's less-than-liberal policies, including softwood lumber.

To top things off, a successful free trade deal with Brazil and its Mercosur partners would largely seal a long-term friendship with one of the biggest emerging world powers of the twenty-first century.

Dean Foster is a research associate at the Centre for Negotiation and Conflict Resolution at the Norman Paterson School of International Affairs at Carleton University.