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Opinion

Observing or joining? Canada in the Pacific Alliance

May 30, 2013

by PABLO HEIDRICH and LAURA MACDONALD

The Ottawa Citizen

 

Stephen Harper’s objectives in visiting South America last week may have been overlooked by Canadians in the storm of controversy about the Senate expense scandal.  It’s important to bring some attention to the trip’s objectives, since it was meant to represent a new, more coherent focus in the Harper government’s strategy of making Latin America a major focus of Canadian foreign policy.  This was a sitting prime minister’s first bilateral visit to Peru, a country whose economy has been booming in recent years. But the main focus of the trip was Harper’s attendance at the Colombian summit of the Pacific Alliance, a new regional economic bloc which currently unites four Latin American countries with Pacific shorelines: Chile, Peru, Colombia and Mexico. The Canadian government has been considering membership in this grouping.

Even though Canada already has observer status, few Canadians have ever heard of the Pacific Alliance (PA), an initiative only inaugurated in 2012. Indeed, some observers in the government party and most from the opposition are perplexed about why Canada is considering membership in that club. After all, the pending trade deal with the European Union and the recently acquired membership in the Trans-Pacific Partnership were supposed to be the most important current negotiations for Canada. This case seems more driven by ideological affinities between Harper’s government and the existing members of this Alliance. The proposed membership may, however, bring few benefits and poses significant challenges to the rest of Canada’s relations with Latin America. In comparison to the PA deep integration agenda, NAFTA look like a pen-pal relationship.

The government has argued that Canada has much in common with these particular Latin American countries with which it has already signed bilateral free trade agreements, emphasizing their centre-right governments and free market policies. Joining this group therefore might seem a natural step, and one that also serves Canada’s interests in getting closer to Asia in search of foreign investments and markets for its raw materials.

However, these four nations are unlike most of the region, since most Latin American countries are currently governed by left and centre-left parties. And in that context of Latin American ideological battles, the Alliance is designed to signal a sustained commitment to free trade and open markets to its neighbours and to the rest of the world. Their approach now is to use this regional bloc to gain an advantage in approaching Asia in inter-regional free trade agreements and to become even more attractive for Asian investment in their extractive industries and export agriculture.

Since Canada already has free trade deals with all of the PA’s member states, joining this group would be unlikely to result in a significant increase in trade. But if the purpose is to follow their lead to make the PA countries even more attractive to Asian investment in extractive industries, Canada will have to accept a lighting fast path of negotiations in subjects it has almost never visited before in international settings.

Starting in the coming months, the Alliance will have completed tariff harmonization to move to much deeper issues, including trade facilitation to reduce border controls, harmonization of standards and regulations, and liberalization of trade in services, particularly of professional services. Another liberalization, this one in movement of people, is a crucial goal for the PA, with member states seeking to achieve visa-free travel within the bloc for their citizens in a very short term. This ambitious route will also include a system of academic and professional equivalencies that, once implemented, will allow a university degree obtained in one of the four countries to be recognized by the others.

Another novelty is that the PA is taking the necessary steps to link and ultimately merge their national stock markets, creating a regional giant comparable to the Brazil’s Bovespa and similar in capitalization and turn over to Canada’s TSX. That joint stock exchange, called Mercado Integrado Latinoamericano (MILA), has already brought together the stock markets of Chile, Colombia and Peru, with Mexico soon to join. The idea is to squarely compete for listings in the Hemisphere related to the extractive industries.

Ultimately, Harper announced during his trip that Canada would not be seeking membership in the Pacific Alliance at this time, stating that it was “too early” to decide. With this trip, Harper perhaps succeeded in signaling Canada’s interest in deepening its relationship with these right-wing regimes without committing his government to the difficult task of negotiating a deal. The resources Canada would have to devote to negotiating membership in the PA could be more efficiently used in new strategies to improve Canada’s trade and economic relations with other countries in the hemisphere, particularly Brazil and Argentina, the biggest economies in South America and leaders of MERCOSUR, the largest economic integration scheme by far.

Overall, while the Pacific Alliance may appear to offer the Harper government an easy path to confirming its commitment to increasing Canada’s role in Latin America, it may just hasten our declining influence in the region, isolate us vis-à-vis other important states, and offer few concrete benefits to Canadians.